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Full text of "The Bayh-Dole Act, a review of patent issues in federally funded research : hearing before the Subcommittee on Patents, Copyrights, and Trademarks of the Committee on the Judiciary, United States Senate, One Hundred Third Congress, second session, on Public Law 96-517, to examine the implementation of the Government Patent Policy Act, which allows universities to patent the results of research funded by the federal government and license their inventions in the marketplace, April 19, 1994"

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PATENTS, COPYRIGHTS AND TRADE.AURKS 

OF THE 

COMMITTEE ON THE JUDICIARY 
. UNITED STATES SENATE 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 
ON 

Public Law 96-517 

TO EXAMINE THE IMPLEMENTATION OF THE GOVERNMENT PATENT 
POLICY ACT, WHICH ALLOWS UNIVERSITIES TO PATENT THE RE- 
SULTS OF RESEARCH FUNDED BY THE FEDERAL GOVERNMENT AND 
LICENSE THEIR INVENTIONS IN THE MARKETPLACE 



APRIL 19, 1994 



Serial No. J-103-50 



Printed for the use of the Committee on the Judiciary 




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POO-' V 
U.S. GOVERNMENT PRINTING OFFIGE-' ^ 'QO/^rtx 



91-388 CC WASHINGTON : 1995 



For sale by the U.S. Government Printing Office 
Superintendent of Documents. Congressional Sales Office. Washington, DC 20402 
ISBN 0-16-047344-6 



S. Hrg. 103-1038 



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THE BAYH-DOLE ACT, A REVIEW OF PATENT 
ISSUES IN FEDERALLY FUNDED RESEARCH 



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Y 4, J B9/2; S. HRG. 103-1038 j^j^q 

»RE THE 

PATENTS, COPraiGHTS AND TRADEJURIvS 

OF THE 

COMMITTEE ON THE JUDICIAKY 
UNITED STATES SENATE 

ONE HUNDRED THIRD CONGRESS 

SECOND SESSION 
ON 

Public Law 96-517 

TO EXAMINE THE IMPLEMENTATION OF THE GOVERNMENT PATENT 
POLICY ACT, WHICH ALLOWS UNIVERSITIES TO PATENT THE RE- 
SULTS OF RESEARCH FUNDED BY THE FEDERAL GOVERNMENT AND 
LICENSE THEIR INVENTIONS IN THE MARKETPLACE 



APRIL 19, 1994 



Serial No. J-103-50 



Printed for the use of the Committee on the Judiciary 




Al/6 f 7 13S5 



U.S. GOVERNMENT PRINTING OFFICE"-' '^P^^V 



91-388 CC WASHINGTON : 1995 



For sale by the U.S. Government Pnnting Office 
Superintendent of Document.s. Congressional Sales Office. Washington, DC 20402 
ISBN 0-16-04734A-6 



COMMITTEE ON THE JUDICIARY 

JOSEPH R. BIDEN, Jr., Delaware, Chairman 

EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah 

HOWARD M. METZENBAUM, Ohio STROM THURMOND, South Carohna 

DENNIS DeCONCINI, Arizona ALAN K. SIMPSON, Wyoming 

PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa 

HOWELL HEFLIN, Alabama ARLEN SPECTER, Pennsylvania 

PAUL SIMON, IlUnois HANK BROWN, Colorado 

HERBERT KOHL, Wisconsin WILLLAM S. COHEN, Maine 

DIANNE FEINSTEIN, California LARRY PRESSLER, South Dakota 
CAROL MOSELEY-BRAUN, IlUnois 

Cynthia C. Hogan, Chief Counsel 

Catherine M. Russell, Staff Director 

Mark R. Disler, Minority Staff Director 

Sharon Prost, Minority Chief Counsel 



Subcommittee on Patents, Copyrights and Trademarks 

DENNIS DeCONCINI, Arizona, Chairman 
EDWARD M. KENNEDY, Massachusetts ORRIN G. HATCH, Utah 

PATRICK J. LEAHY, Vermont ALAN K. SIMPSON, Wyoming 

HOWELL HEFLIN, Alabama CHARLES E. GRASSLEY, Iowa 

DIANNE FEINSTEIN, California HANK BROWN, Colorado 

Karen Robb, Chief Counsel and Staff Director 
Mark Disler, Minority Chief Counsel 

(II) 



CONTENTS 



STATEMENTS OF COMMITTEE MEMBERS 

Page 

DeConcini, Hon. Dennis, a U.S. Senator from the State of Arizona 1 

Kennedy, Hon. Edward M., a U.S. Senator from the State of Massachusetts ... 8 

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah 8 

CHRONOLOGICAL LIST OF WITNESSES 

Hon. Birch Bayh of Bayh, Connaughton, Fensterheim & Malone, Washington, 

DC : 9 

Dole, Hon. Robert, a U.S. Senator from the State of Kansas 16 

Daryl Chamblee, Acting Deputy Director for Science, Policy, and Technology 
Transfer, National Institutes of Health, Bethesda, MD 19 

Howard Bremer, Association of University Technology Managers, Madison, 
WI 30 

Barbara Conta, director. Technology Transfer, Regeneron PharmaceuticEil 
Corp., Tarr3rtown, NY, representing Biotechnology Industry Organization, 
Washington, DC 85 

Charles M. Vest, president, Massachusetts Institute of Technology, Cam- 
bridge, MA 97 

Gary Munsinger, president. Research Corporation Technology, Tucson, AZ 101 

ALPHABETICAL LIST AND MATERIAL SUBMITTED 

Bayh, Hon. Birch: 

Testimony 9 

Prepared statement 12 

Bremer, Howard: 

Testimony 30 

Prepared statement 33 

COGR, University Technology Transfer Questions and Answers, Nov. 

30, 1993 38 

Patents granted to U.S. University and Colleges 76 

Chamblee, Daryl: 

Testimony 19 

Prepared statement 22 

Letter to Senator DeConcini 27 

Erratum 27 

Conta, Barbara: 

Testimony 85 

Prepared statement 87 

DeConcini, Hon. Dennis: 

Testimony 1 

Immediate release 2 

Letter from: 

Sheldon Elliot Steinbach, vice president and general counsel, Amer- 
ican Council on Education, Washington, DC, May 16, 1994 2 

Christopher J. Doherty, Washington director. New England Bio- 
medical Research Coalition, Wasnington, DC, Apr. 19, 1994 4 

Dole, Hon. Robert: 

Testimony 16 

Prepared statement 17 

Munsinger, Gary M.: 

Testimony 101 

Prepared statement 102 

(III) 



IV 

Page 

Vest, Charles M.: 

Testimony 97 

Prepared statement 98 

Letter to Senator DeConcini 100 

International considerations of patent issues in federally funded research 

in universities 100 



THE BAYH-DOLE ACT, A REVIEW OF PATENT 
ISSUES IN FEDERALLY FUNDED RESEARCH 



THURSDAY, APRIL 19, 1994 

U.S. Senate, 
Committee on the Judiciary, 
Subcommittee on Patents, Copyrights and Trademarks, 

Washington, DC. 

The committee met, pursuant to notice, at 10 a.m. in room 216, 
Hart Senate Office Building, Hon. Dennis DeConcini (chairman of 
the subcommittee) presiding. 

Also present: Senator Kennedy. 

OPENING STATEMENT OF HON. DENNIS DeCONCINI, A U.S. 
SENATOR FROM THE STATE OF ARIZONA 

Senator DeConcini. The subcommittee will come to order. 

I would like to welcome everyone to this morning's hearing. The 
intention of this hearing is to examine the success of technology 
transfer under the Bayh-Dole Act of 1980 and to discuss the future. 

I want to thank the witnesses for being here today to provide 
their insight on technology transfer. I would like to especially 
thank our colleague, Senator Dole — he is tied up with some leader- 
ship responsibilities and is going to try to come over — and of course 
our former colleague. Senator Birch Bayh, who is a long-time friend 
of both Senator Kennedy and myself, and has a great deal of re- 
spect here in this body. We thank him for his participation today. 
I appreciate both the Senators' participation, considering their busy 
schedules. 

We will also hear from representatives from the key Federal 
agencies in charge of administering the Bayh-Dole Act, the Na- 
tional Institutes of Health. Then we will have a panel consisting 
of technology transfer experts and individuals representing univer- 
sities and the biotechnology industry. 

The transfer of research results from universities to the commer- 
cial sector was virtually nonexistent prior to the passage of the 
Bayh-Dole Act. The reason: there was no clear Government policy 
regarding ownership of inventions made under Federal funding. 
The Bayh-Dole Act created a uniform patent policy among the 
many Federal agencies that fund Federal research. The result was 
that universities were provided an incentive to engage in Govern- 
ment-sponsored research. 

Under the act, small businesses and nonprofit organizations, in- 
cluding universities, were permitted to retain patents derived from 
Federal funding and license these inventions to the private market- 
place. This incentive was necessary because companies would not 

(1) 



license technology from a university lab unless they were sure that 
they would be able to retain the patent rights. The Bayh-Dole Act 
has proven to be immensely successful by increasing the number 
of patents generated by universities in promoting a collaboration 
between industry and the academic community. 

Nonetheless, concerns have been raised by some that the Govern- 
ment does not adequately regulate the resulting price of technology 
developed with Federal funding. Most of these concerns revolve 
around this act. So we hope to address this. I also think that public 
interest requires us to address whether or not the Federal Govern- 
ment should participate in the rewards from the research spon- 
sored by the universities and then licensed to the private sector. 

We look forward to hearing of the positive results of the act. We 
are also looking forward to discussing the future of the act, what 
reforms are needed — if any — and where to go from here. 

Senator Hatch had another committee he had to work with 
today. That is the reason he is not here. But I talked to him just 
last night about this hearing and he is very interested in it. 

Without objection, Senator Hatch's prepared statement will ap- 
pear in the record. 

[Senator DeConcini submitted the following:] 

News From U.S. Senator Dennis DeConcini for Immediate Release 

FRIDAY, APRIL 15, 1994 

WASHINGTON — Senator Dennis DeConcini (D-Ariz.) will chair a Senate Judici- 
ary Subcommittee on Patents, Copyrights and Trademarks hearing on the Bayh-Dole 
Act, which allows universities to patent the results of federally-funded research, on 
Tuesday, April 19 at 10:00 a.m. in the Senate Hart Building room 216. 

The act, sponsored by former Senator Birch Bayh (D-Ind.) and Senator Robert 
Dole (R-K^n.) in 1980, allows universities to patent the results of research funded 
by the federal government and license their inventions in the marketplace. Prior to 
the act, companies were not able to gain exclusive rights to the results of federally- 
funded university research, and thus were not able to legally control the production 
of commercial products derived from the research. This prevented many companies 
from investing the huge amounts of money needed to further develop the basic re- 
search so it would have commercial applications, and denied the public access to 
new medicines and technologies derived from federally-funded research. 

Since the passage of the Bayh-Dole Act, there has been an increased number of 
patents issued to universities, which has allowed valuable discoveries and new tech- 
nologies to reach the public. Without the act, experts have said, many fast-growing, 
cutting-edge industries, such as biotechnology industry, would not even exist. 

Among those scheduled to testify are Bayh, Dole and representatives of the Asso- 
ciation of University Technology Managers, the National Institute of Health, Massa- 
chusetts Institute of Technology, and the biotechnology industry. 



American Council on Education, 

Washington, DC, May 16, 1994. 

Hon. Dennis DeConcini, 

Chairman Patents, Copyrights and Trademarks, 

U.S. Senate, Washington, DC. 

Re: Bayh-Dole Act 

Dear Mr. Chairman: On behalf of the American Council on Education, the A.sso- 
ciation of American Universities, and the National Association State Universities 
and Land-Grant Colleges, we wish to express our support for the Bayh-Dole Act and 
to comment on the positive accomplishments in the field of technology transfer since 
its enactment. We would appreciate this letter being included in the hearing record 
for April 19, 1994. 

Bayh-Dole has provided a vital link between federally funded university research 
and product development by providing effective mechanisms and incentives for col- 



laboration between university researchers and corporations willing to finance tech- 
nological development. The result of this mutually beneficial collaboration also bene- 
fits the federal government, and U.S. taxpayers because many university inventions 
are licensed to small- and medium-sized American companies and those companies 
create jobs and tax revenue. 

This statement discusses some of the dynamics of Bayh-Dole that have made it 
so successful. These include its uniform patent procedure, the active marketing of 
inventions by experienced university personnel, tne protection of domestic interests, 
and the stimulation of industry-financed research. 

We also wish to express our concern about the Final Rule dated January 6, 1994 
implementing the Advanced Technology Program (ATP). Unless that Rule is modi- 
fied as proposed in pending legislation, the intent of Bayh-Dole is seriously under- 
mined and university participation in the ATP is jeopardized. 

Bayh-Dole Act 

1) Uniform Patent Procedure: Bayh-Dole established a uniform, government-wide 
patent procedure for small businesses and nonprofit organizations performing gov- 
ernment-supported research and development. The Act grants small businesses and 
nonprofit institutions the first right to hold title to inventions arising from federally 
supported research. The small business or nonprofit institution must meet certain 
reporting requirements, grant the government a license for governmental purposes, 
and undertake an active effort to commercialize the invention. Any royalty income 
realized must be shared with the inventor(s) and the balance (after the expenses 
of the technology transfer program are recovered) must be used for scientific re- 
search and education. The government retains the right to "march-in" if the inven- 
tion is not being effectively utihzed, there are unmet health or safety needs, or the 
requirement for U.S. manufacture is not met. 

The Act represents a positive step in U.S. policy which provides an incentive for 
universities and university researchers to devote effort to technology transfer. In ad- 
dition, it provides reassurance to companies that universities can quickly obtain the 
right to license federally funded inventions on commercially reasonable terms. 

2) Marketing University Inventions: While generating inventions is not the main 
objective of most university research, inventions are frequent by-products of that re- 
search. If those inventions Eire to be used for the public benefit, the university must 
interest those in the industrial world to invest in the development activities nec- 
essary to convert the invention into a viable commercial product. Since Bayh-Dole 
was enacted, many universities have invested heavily in creating a technology 
transfer infrastructure and now have in place professional staff with expertise in 
marketing and licensing early stage technology. That infrastructure has been suc- 
cessful in increasing the numbers of patents obtained by universities as well as the 
number of patents that are licensed. Since university inventions tend to be in the 
earliest stages of development, they require substantial investment before a product 
can be brought to market. Furthermore the best source of information on the sci- 
entific basis for the patent is the university researcher who undertook the research. 
Immediate industrial access to these researchers, often leading to further collabora- 
tion, is of critical importance to the successful transfer of this knowledge to indus- 
try. The abiUty to grant exclusive licenses as provided by Bayh-Dole has proved to 
be critical in order to induce companies to make that investment. 

3) Protection for Domestic Interests: Much university-developed technology is li- 
censed to small- and medium-sized companies, thus strengthening the U.S. small 
business community which provides the preponderance of new jobs in the United 
States. Exclusive licensees of federally funded inventions are required to substan- 
tially manufacture in the U.S. any products which are to be sold in the U.S. The 
allegation that valuable technology arising from university research is sold or 
bartered to foreign corporate interests for less than its fair market value is without 
foundation. For example, at MIT, a leader in technology transfer, 95 percent of its 
exclusive patent licenses have been with U.S. companies. 

4) Industry Investment in University Research: University technology transfer ac- 
tivities have also stimulated increased research funding from industry. This indus- 
trial funding not only leverages federal research funding, but it facilitates further 
applied research and development by the industrial sponsor in order to convert the 
results of university basic research into commercial products. The sponsoring com- 
pany has already shown it is committed to the research field and thus is a logical 
candidate to license any resulting inventions. 

Bayh-Dole has facilitated stronger research relationships between universities and 
industry — a stated goal of the Act and an outcome that is consistent with the wishes 
and expectations of the government and the public. Universities have demonstrated 
the ability to work effectively with industry in collaborative research and technology 



transfer activities while protecting traditional academic values regarding research, 
pubUcation and education as well as protecting the public interest through the suc- 
cessful licensing of federally funded inventions. 

Advanced Technology Program 

In 1988, Congress established the Advanced Technology Program (ATP), which 
provided for direct assistance to businesses or to joint ventures (which could include 
businesses, universities and independent research organizations) to develop new and 
promising technology. Thus, Congress has involved the federal government, univer- 
sities, independent research organizations, federal laboratories, and industry in a 
common effort to develop new technology and bolster the position of the United 
States in the world economy. 

In 1991, Congress amended the ATP in the American Preeminence Act. A major 
focus of the 1991 amendments was to limit the benefits any foreign entity could re- 
ceive under the ATP. In so doing. Congress utilized the word "company" and among 
other things stated that "title to any intellectual property arising from assistance 
provided in this section shall vest in a company or companies incorporated in the 
United States." In interpreting the 1991 amendments, attorneys at the National In- 
stitute of Standards and Technology (NIST) have taken the position that the word 
"company" means a for profit business venture and excludes nonprofit institutions, 
such as universities, from holding title to intellectual property. While it is true that 
ATP is aimed at industry-led research and there is language in the 1991 amend- 
ments that is more commonly used in conjunction with business ventures than uni- 
versities, at best, the legislation is ambiguous and clearly can be interpreted to per- 
mit universities to retain title to patents arising from joint ventures. In addition, 
the NIST interpretations ignores the predominance clause in Bayh-Dole inserted by 
Congress in the 1980 Act to ensure that Bayh-Dole should not be easily cir- 
cumvented. 

Nonetheless, NIST issued a Final Rule on January 6, 1994, which codified its in- 
terpretation. Fortunately, an amendment to the National Competitiveness Act of 
1993 (S. 4) amending Section 28 of the National Institute of Standards Act has been 
passed by the Senate and is currently being considered by a Conference Committee. 
This amendment would clarify the intent of Congress and thus permit nonprofit in- 
stitutions participating in the ATP to retain ownership of inventions made by their 
employees. Since Congress has worked consistently to promote cooperation among 
the federal government and all research institutions — universities, federal labora- 
tories, industry, etc. — nothing should be done to discourage any important player 
from participating in the ATP. Thus, it is important that this amendment to (S. 4) 
be enacted quickly and the NIST Final Rule be corrected. 

Under the incentives provided by Bayh-Dole, the universities have demonstrated 
that they can be tremendously creative in developing new technology and in work- 
ing with private industry to commercialize it. They should not be discouraged from 
continuing to play that role as participants in industry-led joint ventures, such as 
those contemplated by ATP. 

We are proud of the success of Bayh-Dole and of the universities' efforts to ensure 
that university technology is developed and brought to market for the public benefit. 
The Act is working well, it should be allowed to continue to do so. 
Sincerely, 

Sheldon Elliot Steinbach, 
Vice President and General Counsel. 



New England Biomedical Research Coalition, 

Washington, DC, April 19, 1994. 

Hon. Dennis DeConcini, 

Subcommittee on Patents, Copyrights and Trademarks, 

U.S. Senate, Washington, DC. 

Dear Senator DeConcini: The New England Biomedical Research Coalition is 
an affiliation of New England teaching hospitals, universities, independent research 
institutes and health care companies organized to preserve and protect the collabo- 
rative biomedical research enterprise. This letter presents the Coalition's general 
comments on technology transfer for the hearing today being held in the Senate Ju- 
diciary Subcommittee on Patent, Copyrights and Trademarks. 

Your Subcommittee hearing coincides with an historic debate in America on the 
costs and future quality of its health care system. It thus offers a well-timed oppor- 
tunity to focus on how technology transfer programs like the Bayh-Dole Act and its 
successor, the Federal Technology Transfer Act, are working. It also offers an oppor- 



tunity to determine if they might be fine- tuned to work better in developing bio- 
medical inventions into products to serve the good of the American people. 

BACKGROUND 

For several decades there has been a close and productive working alliance be- 
tween universities, research institutes, Government agencies, and private industry 
in the area of biomedical research. These relationships were enhanced significantly 
during the 1980's through new laws and regulations that improved the collaborative 
environment for research and innovation among Government and industry labora- 
tories and the nation's research institutions. The partnership was strengthened by 
powerful incentives designed to encourage development and commercialization of in- 
novative technologies initially discovered during Government-sponsored research. 

The new set of policies was designed to: encourage technological innovation on be- 
half of American citizens; enhance the international competitiveness of American in- 
dustry; maximize Federal research efforts; and increase the level of public benefit 
from Government-sponsored research. 

These goals have largely been achieved. America leads the world in biomedical re- 
search and innovation through the transfer of technology spawned by these policies. 
While government agencies, and many of the research institutions they support, do 
not have the capacity to take their discoveries from the laboratory to the market- 
place, their partners in private industry do. In the health-care field alone, collabo- 
rative research and development has given patients access to important thera- 
peutics widely used in treating AIDS and a variety of cancers. Thus, technology 
transfer bridges the gap between the laboratory and the clinic and ensures regu- 
latory approval for new products, thereby yielding tangible benefits for consumers 
and taxpayers. Simultaneously, a mounting level of industry financial support — di- 
rected to research labs and provided in connection with Federal cooperative agree- 
ments — compensates for the widening gap in research dollars created by dwindling 
Federal funding for biomedical R&D. 

As this history suggests, the transfer of technology between academia, industry, 
and Government is the key to development and commercialization of new tech- 
nologies. 

THE PRACTICAL BENEFITS OF TECHNOLOGY TRANSFER 

How does technology transfer policy benefit members of the New England Bio- 
medical Research Coalition? The two facets of technology transfer which our mem- 
bers are most familiar with involve licensing of Grovernment-owned and Govern- 
ment-funded inventions. 

• The Bayh-Dole Act of 1980 governs the disposition of patent and other intellec- 
tual property rights for Government-funded inventions — patentable discoveries 
conceived or first reduced to practice during the course of Government-funded, 
extra-mural research carried out at universities and other similar institutions-- 
and allows the institution conducting the research to keep those rights and li- 
cense them to a third-party, including private companies that may be spun-off 
from the university. 

• The Bayh-Dole Act also authorizes Federal agencies to make Government- 
owned inventions — patentable discoveries conceived or first reduced to practice 
during the course of intramural research conducted by Cxovernment scientists 
working in Government laboratories — available for either exclusive or 
nonexclusive licensing to private companies. 

• There is a third area that is important to private industry in evaluating product 
portfolios: CRADAs. The Federal Technology Transfer Act permits Federal lab- 
oratories to enter directly into cooperative research and development agree- 
ments (CRADAs) with industry, and establishes incentives for private compa- 
nies to enter CRADAs and for Government scientists to continue their research. 
The Government laboratory can contribute virtually anything to the research 
project except funds — patent rights, supplies, personnel, know-how, data, and 
the like. Private companies can contribute all of these things, and provide fund- 
ing to the Government as well, either through royalties or direct payments for 
CRADA-related activities. To encourage industry participation, the lab can 
agree in advance to give any patents resulting from the CRADA to its collabo- 
rating partner. To promote continued Government research, any royalties or 
other income received goes back to the laboratory involved. 

One clear measure of the success of these policies is their effect on the movement 
of innovations from university laboratories to the marketplace. For example, be- 
tween 1980 and 1990, the percentage of total U.S.-origin patents granted to univer- 



sities more than doubled, from 1 percent to 2.4 percent. In this same period, the 
number of applications for patents by universities involving NIH-funded inventions 
increased more than 300 percent. With respect to licensing, universities granted 
over 1,300 new licenses to technology developed in their laboratories in 1992 alone. 
These licenses are benefitting both universities and the general economy. In 1989 
and 1990, 35 major universities granted 197 exclusive licenses and earned more 
than $29.3 milUon in royalties. A recent survey by the Association of University 
Technology Managers identified $9 bilUon in product sales and 53,000 jobs arising 
from such university licenses. 

Critical to this success is the Act's careful system of incentives. Universities may 
retain patent title to technology developed through federally funded research; inves- 
tors can get exclusive licenses to that technology; and, inventors retain the right to 
royalties on their work. Thus, each of these parties is given a direct stake in the 
best development of the new technology. Such a system has been key to getting new 
technology into the marketplace. 

In adcStion, one of the Act's biggest successes — getting industry involved in the 
funding of basic research — threatens to become one of its biggest problems. The Act 
has contributed to a significant increase in the funding of university R&D by indus- 
try. In the past decade, industry support of university research grew faster than did 
any other source of funding. Since 1971, the portion of U.S. industry R&D expendi- 
tures going to academic institutions has nearly doubled. The problem this provokes 
is government scrutiny and interference with the funding arrangements it set out 
to encourage. However, universities must remain free to negotiate agreements that 
attract industry funding, or the funding will disappear. We believe that any attempt 
to require universities to involve themselves in product pricing decisions would dis- 
courage university-industry collaborations, much as the "reasonable pricing clause" 
seems to have discouraged NIH-industry collaborations. 

Also critical to the Act's success is its policy of preserving academic freedom and 
independence. Early on, some saw the Act as a potential threat to academic free- 
dom. In this view, research support agreements between universities and industry 
would distort research priorities with commercial goals. Today, it is clear that the 
Act works because it gives universities freedom to manage inventions within broad 
parameters. Thus, universities can fine-tune the terms of their commercial relation- 
ships to protect against distortion of academic priorities. 

The success of the Act does not mean there is no room for improvement. For ex- 
ample, comprehensive technology agreements that give exclusive access to an insti- 
tution's ftiU range of research may not do enough to guarantee commercial develop- 
ment of all that research. Such agreements should perhaps include an incentive to 
"use it or lose it," to thus discourage the failure to develop valuable research. This 
wovild do more to avoid the risk that important innovations might languish unused 
because of the very agreements intended to promote their development. A recent 
NIH survey of sponsored research agreements however, showed that technology 
transfer managers at the universities and research institutions currently monitor 
this potential problem adequately. 

THE FUTURE OF TECHNOLOGY TRANSFER 

In considering these poUcies, Members of Congress must look to the future. Per- 
haps there are ways to further enhance the goals of the technology transfer program 
by providing more incentives for the collaborative research enterprise to enter into 
important CRADAs that currently have no sponsors? There are at least two good 
examples of such important projects that need collaborative funding — development 
of anti-addiction therapies and the performance of long-term chemo-prevention 
trials. 

According to the National Institute on Drug Abuse (NIDA), up to six milUon 
Americans need drug treatment to break the vicious cycle of drug addiction. As 
members of the Judiciary Committee, I am sure you and your colleagues need not 
be reminded of the social ills and crime brought on by our nation's illicit drug prob- 
lem. Despite this urgent societal need, safe and effective anti-addiction therapies are 
not being developed by the private sector or through government programs. Govern- 
ment funding is limited and private companies lack adequate incentives to invest 
in the development of this class of products. The market is uncertain and there is 
a great stigma attached to drug addiction products. Congress could address this 
problem through its technology transfer process and a recent Institute of Medicine 
study has pointed out this problem. 

Chemo prevention— the prophylactic use of drug therapy in patients who do not 
yet have cancer, but who are at risk of developing the disease — is a new, but highly 
promising, initiative in the ongoing war against cancer. If successful, chemo-preven- 



tion studies could yield effective therapies for slowing, or perhaps preventing, the 
development of cancer. At a minimum, such trials would provide vital new infonna- 
tion about the mechanisms and progression of the disease. To date, the potential 
benefits of chemo-prevention have not been adequately tested in long-term clinical 
trials again because government funding is limited. Moreover, the time and enor- 
mous expense involved in conducting trials whose results may not be known for 20- 
30 years operate as a strong disincentive for private companies to invest in these 

DroiGCts. 

Congress could address this problem by amending the Technology Transfer Act of 
1986— not with reasonable pricing language or government royalty mandates that 
provide disincentives— but by adding incentives to get more private money into re- 
search. Under existing law, Federal agencies have discretionary authority to offer 
a collaborator exclusive marketing rights to a patented product being developed 
under a CRADA, and to collect a royalty on that product when it reaches the mar- 
ket. That authority allows agencies to negotiate adequate incentives to attract 
CRADA partners, and to collect off-budget funding to support additional research. 
However, the prospect of having exclusive rights in 20-30 years for chemo-preven- 
tion, or in the anti-addiction market, is not an adequate incentive for current pri- 
vate-sector investment. Federal agencies should have corresponding discretionary 
authority with respect to unpatented products in a collaborator's portfolio. The abil- 
ity to attract collaborators should not turn on the vagaries of patent law, but rather 
should be driven by the importance of the scientific or societal goal of the govern- 
ment agency. _ , , , 

The amendment to the FTTA would allow the collaborating Federal agency the 
option to negotiate a CRADA under which it would agree to defer action on applica- 
tions for regulatory approval of new versions of an unpatented product in a compa- 
ny's portfoUo. The industrial or research collaborator would agree: (1) to collaborate 
on important research that otherwise would not be undertaken; and (2) to pay a rea- 
sonable royalty to the government. Adding such a tool to the government nego- 
tiator's arsenal could help create an incentive for the support of chemo-prevention 
studies and the development of anti-addiction therapies. They may also create a val- 
uable market for more important collaborations between government, academe and 
industry. 

CONCLUSION 

In promoting technology transfer. Congress must safeguard the public interest by 
ensuring rapid and certain access to innovative technologies for taxpayers. At the 
same time, we hope that you and the Subcommittee guard against the incHnation 
to over-regulate the academic-Government-industry partnership on the grounds that 
Federal funds support the enterprise. 

Government oversight of industry's funding of collaborative biomedical research 
must reflect certain basic principles. First, basic research does not pay for itself As 
Federal funding for such research declines, universities and research labs must re- 
tain the flexibility to negotiate agreements that attract industry funds. Second, in- 
novations do not reach the marketplace by themselves; industry must be able to 
profit from bringing them there or they will not be commercialized. Government 
should not deny business the incentive to take substantial risks that only comes 
from commensurate financial returns. Third, when taxpayers enjoy a return on their 
investment in basic research, the form of that return is the availabiUty of innovative 
technologies and products. This is the kind of return envisioned bv Congress when 
it identified the benefits of technology and industrial innovation: 'improved stand- 
ard of living, increased public and private sector productivity, creation of new indus- 
tries and employment opportunities, improved public services and enhanced com- 
petitiveness of United States products in world markets." 

Finally, the administration has repeatedly emphasized its commitment to bring 
government and business together to' improve the competitiveness of American in- 
dustry. Technology transfer in biomedical research is one area that should not be 
left outside of this broad commitment. Indeed, as Congress ponders ways to make 
health care coverage more affordable and available you should consider the recent 
explosion of new medical knowledge emanating from the nation's collaborative en- 
terprise of government, university and private research laboratories. 

I would be pleased to discuss these matters with you or your staff. Thank you. 

Sincerely, 

Christopher J. Doherty, 

Washington Director. 



8 

Prepared Statement of Senator Orrin G. Hatch 

Thank you, Mr. Chairman. I am pleased to join you in convening this hearing of 
the Subcommittee on Patents, Trademarks on the subject of the Bayh-Dole Act. I 
am particularly leased to welcome my resent colleague — and leader — Senator Dole, 
as well as my former colleague, Senator Bayh, back to the Committee that they both 
served so well. 

I was an enthusiastic supporter of my colleagues when the Congress enacted the 
Bayh-Dole Act, and I am very glad to see them back here today to report to us on 
its great success. 

The pharmaceutical drug industry is one of the great success stories of the Amer- 
ican economy. In large part this success is the result of the foresight of Senators 
Bayh and Dole, when they recognized that vdthout adding some economic incentive, 
some old-fashioned capitalism if you will, to the pharmaceutical research and devel- 
opment process, the public would never receive the benefits of the basic research 
that they were paying for. 

Bayh-Dole has estabUshed a marketplace mechanism that benefits the public, 
benefits university research centers and independent labs, and benefits American 
business in general. This marketplace mechanism does this without costing the 
American taxpayer huge amounts of money. The monies being spent on basic re- 
search before Bayh-Dole were being wasted. Now that money results in useful, often 
necessary products for American consumers. And all of this is being accomplished 
through the free market. I see no reason why this free-market success story should 
be subverted by onerous government regulation. 

I was please to join my colleagues in passing Bayh-Dole in 1980, and I am pleased 
to join them here today in celebrating its success. 1 hope that we have learned our 
lesson that encouraging American businesses to develop and market products is a 
better solution to problems than adding more layers of government bureaucracy and 
regulation. 

I thank all of you for being here and I yield to the Senator from 
Massachusetts, who has been a leader in this area. 
Senator DeConcini. Senator Kennedy? 

STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR 
FROM THE STATE OF MASSACHUSETTS 

Senator Kennedy. Thank you very much, Mr. Chairman. 

I want to first of all express all of our appreciation for having 
this hearing and for your very strong support for area public policy, 
which I think is enormously important to our country and to the 
United States' position in terms of the economic competitiveness in 
the world. I think all of us are very familiar with the strong em- 
phasis that President Clinton and the administration have placed 
upon technology and innovativeness. I think we are very much 
aware that our distinguished colleague, Senator Gore, was enor- 
mously impressive in his leadership in related areas in the Senate 
prior to the time he has served as vice president. 

So the examination of this policy issue is right on target in terms 
of trying to find ways of enhancing America's competitiveness and 
encouraging that very unique kind of relationship that exists today 
between the public and private sector at the universities. The uni- 
versities have been one of America's great success stories in the 
postwar period. Of the 150 major universities around the world, 
126 of them are in the United States. 

It has been the combination of research; the combination of the 
very creative ways that we have gone about it in terms of encour- 
aging young people to go through the universities; and it has been 
the way we have involved the private sector, as well, with univer- 
sities that has really been unique. That is why we see so niany 
countries around the world send some of their best academicians 



to our country to try to find ways that they can repUcate the ways 
we have been successful. 

And in the very precise area of trying to move innovativeness 
and new technologies into the private sector, which will ultimately 
enhance our capability, is certainly something that is enormously 
important for us. I commend my former colleague, who I see here, 
Senator Bayh, for his work as well as Senator Dole in the develop- 
ment of this legislation. It received some recognition when it was 
initially established. I think those that have followed it— particu- 
larly as I have seen it work in my own State of Massachusetts — 
it has really been an enormously important trigger in terms of the 
movement of technology and innovativeness in the commercial 

world. 

I see our distinguished president of MIT, who will testify about 
what has happened at the MIT. But that has been the flagship in 
terms of the effectiveness of this policy moving technology and in- 
novativeness into the private sector. It has been replicated in many 
other universities. 

Finally, I would just say that you have pointed out that impor- 
tant responsibility that we have in terms of the investment by our 
fellow citizens. Obviously, we want to make sure that their inter- 
ests are going to be adequately protected. This is something which 
you are very familiar with that we examined in some detail several 
months ago when we were talking about precisely the AZT issue. 
It is something that we want to be able to give assurances to our 
colleagues that the public interest is being protected. 

Finally, I would say that we want to also make sure that the 
kind of suggestion that has been made in debate in recent times 
about how we are using American taxpayer funds that are being 
developed in terms of research universities and then being exported 
to other countries that are taking advantage of it and using that 
to be able to compete with the United States— that is, I believe, a 
misinterpretation of what has been happening and what the real 
facts are. 

I want to be able to make a record on that issue because there 
has been misinterpretation and distortion as well as misrepresen- 
tation on the broader kinds of policy issues. 

I want to thank the Chairman very much for the leadership pro- 
vided. This is a very, very important hearing. As the other hearings 
that the Chairman has, I want to thank him very much for it. It 
is important and I am grateful for all the work he has done in this 
area as well as related areas involved technology and patent and 
American economic strength. 

I thank the Chairman. 

Senator DeConcini. Thank you, Senator Kennedy. 

Our first witness will be Senator Birch Bayh. 

Mr. Bayh, would you please come forward? Because you are a 
former colleague, we won't put you under oath. 

We welcome you here. Senator Bayh. Your full statement will be 
in the record. Please, summarize it for us. 

STATEMENT OF HON. BIRCH BAYH OF BAYH, CONNAUGHTON, 
FENSTERHEIM & MALONE, WASHINGTON, DC 

Mr. Bayh. Thank you very much, Mr. Chairman. 



10 

Senator Kennedy, I appreciate very much your thoughtful re- 
marks. 

You are all familiar with the motivation behind the enactment 
of the Bayh-Dole technology transfer legislation. It was based on 
the fact that when we approached this problem, as measured in 
constant dollars, investment in research and development in the 
decade prior to the introduction of the legislation had not increased 
at all. We were being really hit over the head by foreign competi- 
tors in the contribution they were making to research. 

The number of patentable inventions made under federally- sup- 
ported research was in decline. Although American productivity 
was growing at a much slower rate than that of many of our com- 
petitors throughout the world, we had missed the real reason for 
that. Simply put, American efforts at innovation, in which we were 
once the undisputed world leader — we are stagnating and falling 
behind those of other nations. 

There is no simple explanation for this, but we examined and 
came to the conclusion that there was a real shortcoming in our ef- 
forts to try to find a way to take government research and transfer 
the technology that had been developed into meaningful programs 
for people who had paid the taxes to develop a research. It was the 
area of federally-funded research conducted by universities and 
small businesses where we thought the effort could be enhanced. 

We noticed that the U.S. Government was spending almost $30 
billion a year for research and development and the results of these 
efforts were that almost none of them really reached the market- 
place where there could be a benefit from them. We came to the 
realization that one of the reasons for this failure was the Govern- 
ment's patent policy. That is why we sought to draft this legisla- 
tion, which could change this policy in a way quickly and directly 
to stimulate the development of commercialization of the inven- 
tions — get them out where people could utilize them. 

Traditional patent policy, as you know very well, provided that 
the Government would always retain rights to any intellectual 
property arising from federally-funded research and that only 
nonexclusive licenses of industry would be permitted. I listed to our 
former colleague, Russell Long, who was probably the number one 
champion of maintaining this protection — all of us are concerned 
about protecting the taxpayer, but when you spend $30 billion and 
you get very little out of it, I don't think the taxpayers were being 
defended. 

By 1978, what we found out when you and your ranking Repub- 
lican, Senator Hatch, and others joined in this effort, was that the 
Federal Government owned 78,000 patents and only 5 percent of 
them were ever licensed. So the Federal tax dollars were really 
being wasted. 

The legislation to which you refer was designed to inject the in- 
centive of the free market into this lumbering system. We do a lot 
of talking in the Congress and generally throughout the country 
about the free enterprise system, but I have never seen a better ex- 
ample of how it would really work as it is supposed to because this 
permitted universities and small businesses to retain patent rights 
to inventions developed with the support of the Federal Govern- 
ment. 



11 

It also provided that the inventors would have an additional mo- 
tivation, and thus that they would stay with the process through 
a royalty-sharing agreement with the inventor. He or she would be 
encouraged to assist in taking his or her discovery from the concept 
to the marketplace. 

The director of the Office of Technology Transfer has helped to 
show what this has resulted in as far as meaningful terms is con- 
cerned. If we look at what has happened just in very simple termi- 
nology and figures, there has been a sharp increase in the number 
of U.S. patents issued to universities. While prior to 1981 fewer 
than 250 patents were issued to universities per year, a decade 
later almost 1,600 patents are year are being issued to universities. 
That is more than a 6-fold increase and I think it can be directly 
attributed to the free market aspect of Bayh-Dole. 

A recent survey conducted by the Association of University Tech- 
nology Managers reported 2,700 patents filed by universities and 
other research institutions in 1982. Over 150 licenses have been 
granted. Royalty revenues to universities were $130 million in fis- 
cal year 1991 and grew to approximately $172 million in fiscal year_ 
1992. Royalties received by all entities under the act were almost 
$200 million and $259 million during this same period. 

Over 50 new companies had been started through licenses grant- 
ed by the Massachusetts Institute of Technology alone. MIT is 
making a significant contribution to this. 

Now, Dr. Stevens — who I think is going to testify later — took this 
manager's report, the AUTM study, and estimated that the direct 
economic impact of the act has resulted in the creation of markets 
of between $9 billion and $13 billion in product sales, between 
50,000 and 100,000 new jobs, and tax revenues of over $2 biUion 
to Federal, State, and local entities. So you can get some perspec- 
tive of the impact of this legislation. 

Congress, of course, followed Bayh-Dole with two important 
pieces of legislation, the Federal Technology Transfer Act of 1986 
that would encourage Federal laboratories to enter into cooperative 
research with private industry, and also the advanced technology 
program in 1988 which would encourage direct assistance to busi- 
ness and joint ventures in developing new technology. 

Mr. Chairman, I think that one of the key elements of Bayh-Dole 
was that it emphasized — ^you emphasized as a joint sponsor and 
supporter of this — that there be a common effort between the Fed- 
eral Government, universities, independent research organizations. 
Federal laboratories, and industry in a common effort where there 
was going to be cooperation among all the parties with one goal in 
mind: more technology transfer, more impact on the productive 
process, more innovative ways of producing the United States of 
America. I believe this cooperative effort should continue. 

I must confess that I am concerned that the officials administer- 
ing the advanced technology program at the Department of Com- 
merce have taken the position that Bayh-Dole does not apply to 
that program and only for-profit business ventures can hold title to 
intellectual property, thus excluding nonprofit institutions such as 
universities from acquiring property rights in joint ventures in 
which they participate. 



12 

I also understand that a similar position is being taken by the 
Advanced Research Projects Agency at the Department of Defense. 
I am sure those are well-intentioned and I assume that some indi- 
viduals who are responsible for that will have an opportunity to ex- 
plain the motivation behind this. I am sure the motivation is cer- 
tainly one of best intention, but in my judgment these positions 
cannot and should not be permitted. They cannot be justified and 
I would suggest that they shouldn't be permitted to continue. 

The policy behind all the technology transfer programs we are 
discussing here this morning was to harness all the research and 
all the resources to promote the development of new technology 
and the commercialization of that technology. To say that in two 
areas we are going to exclude those institutions that have proven 
how successful it works it seems to me is not only to ignore success 
but to try to lessen it. 

I don't think that is the intent, but Mr. Chairman, I fear that 
is the result. 

I am also concerned about some proposals being made to impose 
price controls. The whole benefit and thrust of this technology 
transfer in the various legislation has been to rely on the commer- 
cialization — as I have said earlier — to let the free enterprise system 
work. I fear that price controls would discourage industry and not- 
for-profit institutions from participating in these CRADA's that 
have been formed under the latest legislation. 

In fact, that has already begun to take place at the National In- 
stitutes of Health, which has administratively undertaken a form 
of price control. The number of CRADA's has dropped from 126 in 
1992 to 26 in 1993. 

So Mr. Chairman, I salute you for the legislation you have pro- 
posed. There is an effort to address this in a compromise version 
of S. 4. But I urge you to find a way to protect the taxpayer with- 
out imposing those kind of controls that destroy the very incentive 
that has provided the very successful impetus behind the Bayh- 
Dole legislation. 

Mr. Chairman, let me resist the temptation to succumb to an 
endless discussion of this. 

[The prepared statement of Senator Bayh follows:] 

Prepared Statement of Hon. Birch Bayh 

Mr. Chairman, I want to thank you for inviting me to testify this morning on the 
Bayh-Dale Act. I particularly appreciate the opportunity to share my views with 
your Subcommittee since, if memory serves correctly, both you and the ranking Re- 
publican member of the Subcommittee were original co-sponsors of this legislation 
when it was first introduced in 1978. As you will recall the situation at that time, 
there was considerable concern that the United States was falling behind in its tra- 
ditional role of international leadership in technological innovation. As measured in 
constant dollars, investment in research and development in the decade prior to the 
introduction of the legislation had not increased at all. The number of patentable 
inventions made under federally supported research was in decline. American pro- 
ductivity was growing at a much slower rate than that of many of our world com- 
petitors. Simply put, American efforts at innovation, in which we were once the un- 
disputed world leader, were stagnating and falUng behind those of other nations. 

There were a number of theories on the various causes of these problems, but 
clearly the United States needed to develop a more effective overall technology 
transfer policy. Senator Dole and I agreed that there was an opportunity in one par- 
ticular area where we could begin the process of providing a comprehensive tech- 
nology transfer pohcy for the United States. This was in the area of federally funded 
research conducted by universities and small businesses. We noticed that while the 



13 

United States government was spending almost $30 billion a year for research and 
development the results of these efforts almost never found their way into the mar- 
ketplace. The taxpayers were getting almost no return on their investment. We 
came to the realization that this failure to move from abstract research into useful 
commercial innovation was largely a result of the government's patent policy and 
we sought to draft legislation which would change this poHcy in a way to quickly 
and directly stimulate the development and commercialization of inventions. 

Traditional patent policy in this area had always required that the government 
retain rights to any intellectual property arising from federally funded research and 
provided for only nonexclusive licenses to industry. The theory underlying this pol- 
icy was that any economic rewards resulting from federally funded research and de- 
velopment should be largely captured by the government, for the benefit of the tax- 
payers, and generally not shared on an exclusive basis with non-governmental enti- 
ties. However, the actual impact of the policy was that there was absolutely no in- 
centive to develop government financed inventions for the commercial market. Con- 
sequently any discoveries made through this research sat on the shelf gathering 
dust. By 1978 the Federal Government owned 28,000 patents and only 5 percent 
had ever been licensed. Federal tax dollars were being wasted by engaging in re- 
search which rarely, if ever, resulted in a useful product. This pohcy was not only 
wasting tax dollars, but it had a very negative impact on U.S. technological innova- 
tions and undercut American competitiveness. 

The Bayh-Dole bill was designed to inject the incentive of the free market into 
this slumbering system. It permitted universities and small businesses to retain 
patent rights to inventions developed with the support of the Federal Government 
so that technology could be licensed to private companies and new products could 
be bought to the marketplace. 

It also provided for additional motivation for inventors by reqmnng umversities 
and small businesses operating under the Act to have a royalty sharing agreement 
with the inventor. Thus, the individual researcher was encouraged to assist in tak- 
ing his or her discovery from concept to marketable product, rather than removing 
himself or herself from the process after the basic research and simply publishing 
an academic article. The legislation sought to strike a careful balance between the 
rights of the Federal Government to use inventions arising out of research that the 
Federal Government helped to support, and the equally important right of the pub- 
lic to see that the inventions realized their full potential in the marketplace and ac- 
tually reached the people that they would benefit. t^ l r^ i 

Mr. Chairman, all indications are that since its enactment in 1980, the Bayh-Uole 
Act is working and, in fact, working remarkably well. The Act has motivated umver- 
sities to become actively involved in transferring technology from their laboratories 
to the marketplace. A report on Bayh-Dole issued by the Council on Governmental 
Relations concluded that the clear patent policy estabUshed by the Act, which al- 
lowed universities to retain title to and license their inventions, has been a healthy 
incentive for universities to commercialize their inventions and has resulted in a 
sharp increase in the number of U.S. patents issued to universities. While prior to 
1981 fewer than 250 patents were issued to universities per year, a decade later 
almost 1,600 are being issued to universities each year. 

A recent survey conducted by the Association of University Technology Managers 
reported 2,700 U.S. patents filed by university and other research institutions in 
1992. Over 1,500 licenses have been granted. Royalty revenues to universities were 
$130 miUion in fiscal year 1991 and grew to approximately $172 milUon m Ascaj 
year 1992. Royalties received by all entities under the Act were $199,516,739 and 
$259,305,404 million for the same time periods. Over 50 new companies have been 
started through Ucenses granted by the Massachusetts Institute of Technology 

The director of the Office of Technology Transfer at the Dana Farber Cancer Insti- 
tute Dr Ashley Stevens, has made some preliminary estimates of the economic con- 
sequences of the Bayh-Dole Act based on the results of the Manager's survey. He 
estimates that the direct economic impact of the Act has resulted in the creation 
of markets with between $9-$13 billion in product sales, 50,000 to 100,000 new jobs 
and tax revenues of over $2 billion to federal, state and local governments. More- 
over, this remarkable burst of economic activity has been achieved without the ex- 
penditure of one nickel of taxpayers money. , ■, • .^u 

As you know, Mr. Chairman, Congress has built on the foundation laid in the 
Bayh-Dole Act by enacting the Federal Technology Transfer Act of 1986 to encour- 
age federal laboratories to enter into cooperative research with private industry, and 
the Advanced Technology Program in 1988 to provide direct assistance to businesses 
and joint ventures in developing new and promising technology. Through these 
pieces of legislation, the United States has been developing a complete program of 



14 

technological development and transfer into the commercial market. Congress has 
rightly involved the Federal Government, universities, independent research organi- 
zations, Federal laboratories and industry in a common effort to develop new tech- 
nology and bolster the position of the United States in the world economy. The em- 
phasis running through these pieces of legislation has been cooperation among all 
of these creative institutions who can contribute to the development of technolo^. 
I believe this cooperative effort should continue and the vital role of all of these in- 
stitutions should be encouraged. 

In this regard, Mr. Chairman, I am concerned that the officials administering the 
Advanced Technology Program at the Department of Commerce have taken the posi- 
tion that the Bayh-Dole Act does not apply to that program and only "for-profit" 
business ventures can hold title to intellectual property, thus excluding non-profit 
institutions such as universities from acquiring property rights in joint ventures in 
which they participate under the program. I also understand that a similar position 
is being taken by the Advanced Research Projects Agency at the Department of De- 
fense. I don't believe these positions can be justified. The policy behind all of the 
technology transfer programs which we are discussing this morning has been to har- 
ness all resources to promote the development of new technology and the commer- 
cialization of that technology. Nothing should be done to discourage any important 
player from participating in programs aimed at achie'/ing this goal. As we have dis- 
cussed, under the Bayh-Dole Act the universities have demonstrated that they can 
be tremendously creative in developing new technology and working with private in- 
dustry to commercialize it. They should not be discouraged from continuing to play 
that role in industry-led joint ventures as they would be if the policies at the Ad- 
vanced Technology Program or the Advanced Research Policy Agency continue to ex- 
clude them from holding title to intellectual property. 

At the same time all parties should be monitored and encouraged to engage in 
reasonable licensing policies so that basic research can more effectively be turned 
into useful commercial products. Unreasonable licensing policies, which thwart the 
objectives of technology transfer, should be avoided. 

1 am also concerned, Mr. Chairman, over both agency and legislative proposals 
to impose price controls on the cooperative research and development agreements 
entered into under the Technology Transfer Act. As you know, by their very nature 
these efforts involve the kind of basic research and development which is highly 
speculative and whose final outcome and ultimate cost is difficult, if not impossible, 
to predict. I am fearful that price controls will discourage industry and not-for-profit 
institutions from participating in these CRADAs and, therefore, ultimately impair 
our technology transfer goals. In fact this has already begun to take place. At the 
National Institute of Health, which has administratively undertaken a form of price 
control, the number of CRADAs has dropped from 126 in 1992 to 26 in 1993. 

If Bayh-Dole has done nothing else, it has proven once again that the American 
free enterprise system provides a powerful incentive. This incentive can once again 
demonstrate that the intellect and imagination of our citizens, and the technology 
they develop, is pre-eminent. 

Mr. Chairman, again I want to commend you for holding these hearings. An effi- 
cient technology transfer system is essential for a vigorous and competitive United 
States economy. We have come a long way since we began to reform that system 
in 1980 and I am sure that under your leadership and that of the Subcommittee 
we will continue to make progress. 

Senator DeConcini. Senator Bayh, thank you for that presen- 
tation and the summary of where this legislation may have gone 
slightly astray. 

We know how successful this act has been. It has created a mar- 
ket worth $10 billion annually and has provided thousands of jobs. 
It is estimated that it generates tax revenue of $2 billion. Looking 
at the act today, do you think there should be a greater role for 
the Government in participating in any of the revenues derived ei- 
ther from the universities or the money that is made by the li- 
censee? 

Now, as I understand it, the universities get a small royalty or 
percentage — whatever they negotiate when they grant the license — 
but the Federal Government doesn't get anything. The argument is 
that the Federal Government benefits from the amount of jobs cre- 
ated, technology advanced, sales made by American industry, and 



15 

the resulting tax revenues. Do you think there is any merit or any 
need for the Federal Government to participate on the entry level 
of the license process, particularly in light of the tremendous eco- 
nomic problems that our Government faces? This might be called 
a user fee on a grant, in essence, if they were to receive even a 
small recompense for being part of this process. 

What is your observation? 

Mr. Bayh. I must say that I share your concern in the dilemma 
you face in trying to balance things out and get revenue for needed 
services. I must confess that I am glad that you have that respon- 
sibility instead of me. 

However, I would urge caution. In the study of the figures you 
referred to, there is one other line — $2 billion of revenue. It would 
seem to me that to apply a small royalty or user fee to the Federal 
Government needs to be considered on whether you are getting 
more from that revenue than you are going to take out of the tax 
pot at the bottom. 

The concern I have, Mr. Chairman, is that we have seen — I hap- 
pened to have been in the right place at the right time to have had 
a role in helping create this legislation. I didn't have anything to 
do with implementing it. The private sector together with industry 
have made this thing work. 

If you look at the track record, wherever the Federal Government 
has tried to fine-tune, sometimes it gets across a line and instead 
of a plus it is a minus. 

There have been one or two examples where the profit has been 
exorbitant. Perhaps there is some way you can deal with an exorbi- 
tant profit. But I would like to remind you — I don't think you need 
to be reminded — that these ideas are all speculative at the begin- 
ning. They are very chancy. 

Senator DeConcini. Senator Bayh, I appreciate that. I think 
what you're telling me is that if it's not broken, don't try to fix it. 

My question is, in your opinion, do you think a small percentage 
of the license fee going to the Federal Government, or an additional 
small percent being charged to the license that would revert to the 
Federal Government — do you think that would damage the success 
of this act? 

I know we don't know how much it would do to reduce the $2 
billion annually that comes in here, but what do you think? 

Mr. Bayh. I think it would be wrong and self-defeating to estab- 
lish a fee up front. If you want to put a percentage on what profit 
is made 

Senator DeConcini. What about that? 

Mr. Bayh. I would find that less onerous. 

But here again, I think it all needs to be weighed on the basis 
of whether it detracts from incentive from a reasonable profit. And 
I want to come back to the concern I have about the NIST and De- 
fense Department's unwillingness to use the Bayh-Dole provisions. 
This is one area where our piece of legislation has really worked. 
To say that Congress would come along and provide a package 
where it only belongs to industry — industry is going to have a role. 
Industry has a role in Bayh-Dole. 



16 

Senator DeConcini. My concern here is that there is some move- 
ment here to really get the Government involved with the market 
in the early stages. I just see that as the worst thing we could do. 

On the other hand, when I think about it, I say that if there are 
profits made, is it unreasonable for not just the universities to get 
a license fee but for the Federal Government to get a small per- 
centage of those profits. Maybe it is. It doesn't offend me like some 
of the suggested legislation that would have the Government set 
the price of what can be charged and get involved in the whole 
market system. 

Thank you. 

Senator DeConcini. Senator Dole, we held this meeting up a 
long time for you. We knew you were coming and we want you to 
have a chance to speak. You know the rules around here, Senator. 
Your full remarks will be inserted in the record and you may have 
just as long as you like, since you are the minority leader. 

STATEMENT OF HON. ROBERT DOLE, A U.S. SENATOR FROM 

THE STATE OF KANSAS 

Senator Dole. I am sort of the junior partner in this effort, but 
I want to commend my good friend. Birch Bayh, because it was 
really his initiative. If you want to make it bipartisan, I am always 
bipartisan. [Laughter.] 

Senator DeConcini. No comment. [Laughter.] 

Senator Dole. So we agreed to work together. I think we did the 
right thing for the reasons Birch has stated and the reasons I have 
in my statement, which I will make a part of the record. 

We are right in the middle of a Finance Committee hearing on 
health care, which seems to be something that is fairly important 
these days, so if you don't mind I would put my statement in the 
record. 

I didn't hear Senator Bayh's statement, but the Government was 
spending billions of dollars on research that never saw the light of 
day. Then this little bill came along and it has had fair success. We 
get little rumblings that maybe there are a few people around who 
want to change it. I think that would be a mistake. 

We have even had examples in our small State at the Kansas 
State University and the University of Kansas where they have 
done some very good things that are going to benefit mankind that 
they could not have done without the Bayh-Dole effort. Now we 
have royalties that exceed $80 million. 

Let me just mention a couple. 

At the University of Kansas, for example, they have developed a 
new compound which allows doctors to administer medicine with- 
out worrying about toxic side effects. They have patented this dis- 
covery and entered into a license agreement with a pharmaceutical 
corporation to bring the new product to market. To me, that is 
pretty important. That happened because they were able to operate 
under this legislation. 

At Kansas State, they developed in conjunction with KICE In- 
dustries the KSU flour mill that will meet the food processing 
needs of developing countries. Unlike the old mills that cost mil- 
lions of dollars and were very difficult to run, this mill is compact 
and easy to operate and inexpensive. 



17 

So I guess my point is that if there wasn't a good, positive track 
record out there that things were happening that were really help- 
ful to people, I would say that maybe this was just another thing 
that happened in Congress that didn't amount to much. 

I just want to express my concern that we know that some Mem- 
bers of Congress and some in the Executive Branch have some 
problems. It seems to me that we went through price caps back in 
the 1970's. I remember President Nixon — of course we wish for his 
speedy recovery — imposed price controls. We saw what happened 
there. It wasn't a very good idea. 

I think if anything, the question you posed to Senator Bayh — if 
there are profits, maybe address that side of it. 

[The prepared statement of Senator Dole follows:] 

Prepared Statement of Senator Robert Dole 

Mr. Chairman, I want to thank you and the subcommittee for the opportunity to 
speak about the success of the Bayh-Dole Act. as one of its principal authors, I 
would also like to express my concerns about legislation that will undermine its 
very premise. 

TECHNOLOGY TRANSFER VIRTUALLY NON-EXISTENT BEFORE BAYH-DOLE 

Prior to the Bayh-Dole Act, the federal government was spending billions of dol- 
lars on research that never saw the light of day. Fewer than 4 percent of the 28,000 
government-owned inventions were commercialized prior to 1980. While some might 
think otherwise, many of these projects had useful appUcations. The problem was 
that the Federal Government held onto to the patent rights. It was very difficult, 
if not impossible, for private industry to acquire them. Without the security of an 
exclusive license or a patent, companies were reluctant to commit the necessary 
time and money to commercialize these products. 

Let's face it, R&D is expensive, but it has been estimated that it only accounts 
for 25 percent of the cost to bring a new product or process to market. The bottom 
line is that business would not invest in new products if it did not have reasonable 
protection. 

INTENT OF BAYH-DOLE 

When we drafted the Bayh-Dole Act more than a decade ago we wanted to bolster 
cooperation between the Federal Government, private industry and university re- 
search faciUties. At the same time, we wanted to encourage greater technology 
transfer, to stimulate innovation, to create new jobs, and to expand markets for new 
products. There is no question that all these goals have been met. 

BENEFITS OF BAYH-DOLE 

Accomplishments that can be directly attributed to Bayh-Dole are too numerous 
to count. Nonetheless, I would like to take a moment to highlight a few. 

On the top of my list would be the biotech industry. This is one of the fastest 
growing, most innovative, and most lucrative industries today. Bayh-Dole is univer- 
sally credited for helping spur its development, and I am proud to say that I had 
a hand in making the U.S. the world leader in this new field. 

University patent and licensing activities have also exploded since the act was 
signed into law. Former national institutes of health director. Dr. Bernadine Healy, 
has noted that during the 1980's patent applications on NIH supported R&D went 
from 890 to 2,600. 

And university licensing royalties are up. This revenue stream, which is plowed 
back into further research, has nearly tripled since 1986. The latest numbers are 
in, and roysdties now exceed $80 million each year. 

IMPACT ON KANSAS 

Let me also note that in my homestate of Kansas, universities have taken full ad- 
vantage of technology transfer that Bayh-Dole has made possible. Over the last 
three years, 30 patents have been issued to Kansas State University, while the Uni- 
versity of Kansas was issued 23 patents. 



18 

For instance, the University of Kansas has developed a new compound which will 
allow doctors to administer medicine without worrying about toxic side effects. The 
university has patented this discovery and entered into a licensing agreement with 
Pfizer pharmaceutical corporation to bring this new product to market. KU is also 
close to making a scientific breakthrough to improve the treatment of diabetes. 

The developments in Kansas have also gone beyond the production of new drugs. 
Kansas State University has developed, in conjunction with KICE Industries, the 
KSU flour mill that will meet the food processing needs of developing countries. Un- 
like old mills that cost millions of dollars and were difficult to run, the KSU mill 
is compact, easy to operate, and relatively inexpensive. 

CHALLENGES TO BAYH-DOLE 

I am very concerned about new initiatives offered by some members of Congress 
and some executive agencies that, in my view, fly in the face of the Bayh-Dole Act. 

Two specific examples stand out. First, there are those who would jeopardize 
Bayh-Dole's cooperative spirit by giving the industrial partner sole right to devel- 
oped technology and leave the universities in the cold. Such action will dry up an 
important revenue stream for universities and will decimate their research capabili- 
ties. 

Second, a few members would like to increase the Government's role in negotia- 
tions on technology developed through federal funding. I should remind my col- 
leagues that prior to Bayh-Dole, the Grovernment had total control, and technology 
transfer did not happen. Reintroducing government intervention in price setting, ne- 
gotiations, and licensing will destroy 13 years of improving technology transfers. 

If my colleagues have forgotten that capping prices is a bad idea, let's look back 
to the early 70's when President Nixon tried it on prescription drug prices. Research 
stagnated, and eventually the caps had to come off. It didn't work then, and it won't 
work now. 

CONCLUSION 

Mr. Chairman, when Congress originally passed Bayh-Dole it took into consider- 
ation that unfair advantages or additional government costs may occur. However, 
the benefit to society was the overriding concern. It would be a travesty if we were 
to reverse ovirselves now. I would urge the subcomxmittee to seriously question pro- 
posed changes, as they will only diminish America's ability to bring the most ad- 
vanced products to market in a timely fashion. 

Senator DeConcini. Is that worth addressing, or should we just 
leave it alone? 

Senator Dole. I would rather just leave it alone on the theory 
of no new taxes. But there may be some way to do that in the 
agreement where it doesn't require a mandate. There might be 
some way to do it there. 

Senator DeConcini. That is my only concern, Senator Dole. If we 
are going to address it — and we don't have legislation pending be- 
fore us, but we hear a lot of cases where exorbitant profits were 
made and there may be ways to touch on that. But it comes to my 
mind that maybe there should be a user fee here from the stand- 
point of profits. Maybe not. Maybe the Government shouldn't be in 
that business. But I have resisted raising user fees for parks, the 
Coast Guard, and many other services that are common now. 

If you go down to the Patent Office today, they generate hun- 
dreds of millions of dollars and we charge everybody hundreds of 
millions of dollars. So they are more than sustained now from the 
charges. That, to me, is a real mistake, but it is here. It is the re- 
ality of what we are doing today. 

I thank you for your testimony. I thank you both for your leader- 
ship many years ago in putting this thing together. I doubt wheth- 
er the voters knew just how many jobs this would create and how 
many billions of dollars it would generate in economic benefit to 



19 

this country as well as revenues to the Government. I am glad they 
are learning. 

Mr. Bayh. I would wish you well on your legislative efforts to try 
to perfect some of the efforts being made elsewhere and make them 
more complementary. 

Senator Dole. I would be happy to explore it at the staff level. 

Senator DeConcini. I am tempted not to touch it. It is working 
pretty dam well. If we do anything, we need to do something so 
that the public is not outraged by some $100 million sale. I have 
nothing against big profits, but when it is generated from a grant, 
you do have some public responsibility. 

Thank you very much. Senator. 

Our next witness will be Dr. Daryl Chamblee, Acting Deputy Di- 
rector for Science, Policy, and Technology Transfer at the National 
Institutes of Health. . 

We are pleased to have you here. Your full statement will be in- 
serted in the record. Would you, please, summarize your statement 
for us? 

STATEMENT OF DARYL CHAMBLEE, ACTING DEPUTY DIREC- 
TOR FOR SCIENCE, POLICY, AND TECHNOLOGY TRANSFER, 
NATIONAL INSTITUTES OF HEALTH, BETHESDA, MD 

Ms. Chamblee. Good morning, Mr. Chairman. 

I am pleased to appear before you today on behalf of Dr. Harold 
Varmus, the Director of the National Institutes of Health, to dis- 
cuss within the context of Bayh-Dole the role of the National Insti- 
tutes of Health in commercializing technology that has been devel- 
oped in whole or in part through NIH-supported research. 

The mission of the NIH is the pursuit of science to improve 
human health. In furtherance of this mission, NIH expends ap- 
proximately 80 percent of its $11 billion budget to support research 
and research training in institutions throughout this Nation. Our 
agency's competitive extramural awards include over 28,000 re- 
search awards or grants and about 1,400 contracts involving 1,700 
universities, medical centers, and research institutions. NIH and 
the institutions it funds conduct cutting edge research that is vital 
to the continued strengthening and expansion of our national bio- 
medical research enterprise from which many stunning discoveries 
have emerged over the last 2-3 decades. 

Through efficient technology transfer mechanisms, some of these 
discoveries have been translated into commercial products or proc- 
esses that prevent the spread of infectious diseases, reduce the in- 
cidents of various deadly illness, and relieve human pain and suf- 
fering. The Bayh-Dole Act, which governs the transfer of tech- 
nology from NIH-funded research institutions to industry is central 
to our efforts to facilitate the development of useful preventive di- 
agnostic and therapeutic products. 

The legislation serves to expedite technology transfer and mini- 
mize administrative costs by giving grantee institutions ownership 
to inventions developed with Federal funds. Through this statute, 
the Congress has encouraged collaboration between commercial 
concerns and nonprofit organizations, such as the universities 
whose research we fund; promoted the patenting and licensing of 
inventions developed with Government funding; and given pref- 



20 

erence in such activities to small business firms and those who 
manufacture in the United States. 

As Senator Bayh suggested, prior to the enactment of Bayh-Dole, 
rights to inventions developed with Government support were dealt 
with in one of two ways. They would be assigned to the funding 
agency and made available to the public through licensing on a 
nonexclusive basis, or they could be dedicated to the public through 
publication of research results. However, this approach was recog- 
nized as stifling collaborations between commercial concerns and 
nonprofit organizations. 

Since the passage of the Bayh-Dole Act, patenting and licensing 
are being pursued more aggressively and university collaborations 
have proliferated. According to the National Science Foundation, 
about one in every four university patents issued in the late 1980's 
was for a biomedical or health- related invention. This is in con- 
trast to the early 1970's when the ratio was about 1 in 8. 

What is also significant is the trend indicating that industrial 
funding of academic research is increasing. This increase shows up 
in fundamental research as well as in more apphed research. Be- 
cause the growth of NIH appropriations has not kept pace v^ith the 
rapidly expanding research opportunities, research institutions 
have had to look elsewhere for additional support. 

The increasing involvement of industry and academic research 
and the potential problems associated with such involvement were 
first addressed in a series of hearings convened in 1982 by the 
House Science and Technology Subcommittee on Investigations and 
Oversight. At that time, the committee noted that its "continuing 
concern that our universities may be permanently altered by the 
increasing number of commercial agreements." Although not view- 
ing such agreements as bad, per se, the committee did warn of the 
potential to adversely affect one of America's greatest strengths, 
that is, the Nation's research universities. 

Although the concerns of that committee have not significantly 
materialized, the NIH has made over the last year an intensified 
effort to learn more about the types of interaction that our grantee 
institutions have with industry. We have made this effort in order 
to determine whether the Bayh-Dole Act is achieving its ultimate 
purposes and to evaluate whether institutions are generally com- 
plying with its provisions, and in doing so safeguarding the integ- 
rity of academic research. 

We have concluded that the Bayh-Dole Act appears to be working 
well. However, NIH recognizes the need to provide guidance to its 
grantees and their increasingly complex collaboration with indus- 
try. We are attempting to fulfill this need. 

Over the last year, the NIH has focused a substantial amount of 
its attention on what we have referred to as university-industry- 
sponsored research agreements to distinguish this type of collabo- 
ration from others that might exist. To develop responsible public 
policy in this area, the NIH established an internal task force on 
the commercialization of intellectual property rights from NIH- 
supported extramural research. This group analyzed 375 sponsored 
research agreements, held informal round table discussions with 
other Government agencies, grantee institutions, and industry, and 



21 

recently convened an outside panel of experts in a public forum to 
discuss specific issues related to sponsored research agreements. 

Most of the sponsored research agreements that NIH reviewed as 
part of its survey— that is, 331 or 88 percent of the 375 agree- 
ments — represented very small, project-specific arrangements that 
typically involve the work of one or two academic scientists and 
covered narrowly defined research areas. Moreover, 85 percent of 
all the agreements were for periods of 5 years or less. Only 44 
agreements out of the 375 were considered large-scale in that they 
involved a major component of an institution or the entire intellec- 
tual output of a research institution. 

Although in most cases licensing rights were promised to indus- 
trial partners in advance, the vast majority of agreements re- 
stricted the industrial partners' intellectual property rights to par- 
ticular project or discreet fields of research. Slightly under half, or 
167 of the 375 agreements, were with small businesses. Mr. Chair- 
man, 87 percent of the agreements involved United States corpora- 
tions or domestic subsidiaries of non-U. S. companies. 

The members of our expert panel at our public forum generally 
agreed that the Bayh-Dole Act has been effective in promoting 
technology transfer in the context of sponsored research agree- 
ments. The statute provides benefits to those conducting federally- 
funded research as well as serves the public interest by providing 
an efficient mechanism for converting federally-funded research 
into useful commercial products and by stimulating local econo- 
mies. 

The panel therefore counselled the NIH against instituting strin- 
gent rules or further regulations which might threaten the use of 
sponsored research agreements. However, the panel also recognized 
the usefulness of some guidance from the NIH to its grantees so 
that they might better be able to comply with the requirements of 
the act. 

After considering the views of other forum participants drawn 
mainly from academic and corporate research communities, the 
panel drew the following conclusions related to these five specific 
questions posed at the forum regarding NIH's role in ensuring com- 
pliance with the Bayh-Dole Act. 

First, certain features of university/industry sponsored research 
agreements are red flags that signal a need for additional scrutiny. 

Second, NIH should take into account a number of economic fac- 
tors when considering waivers of the United States manufacturing 
requirement that is embedded in Bayh-Dole. 

Third, grantee institutions should have the primary responsibil- 
ity for ensuring that federally-supported research is commer- 
cialized to the extent practicable. 

Fourth, although fair access by small businesses to federally- 
funded research at grantee institutions appears not to be a prob- 
lem, certain safeguards would be helpful in assuring continued suc- 
cess. 

And finally, NIH should take a lead role in promoting basic prin- 
ciples of research freedom by providing guidance through policy 
statements or educational materials. 

In conclusion, Mr. Chairman, the NIH has learned through its 
review and analysis of sponsored research agreements that the sit- 



22 

nations covered by the agreements are often unique, multi-faceted, 
requiring delicate balancing of risks and benefits to the parties in- 
volved. In our review, we found that although certain factors neces- 
sitated more scrutiny than others, no one factor or provision was 
fatal. Rather, the juxtaposition of multiple problematic factors or 
causes in an agreement could tip the scale in favor of the interests 
of an industrial partner at the expense of the research institution 
or the public, thus upsetting an otherwise appropriate balance. 

In general, NIH found no marked trend toward large-scale or 
megadeals between industry and our grantees. Based on what we 
have found from our survey and from discussions of the public 
forum, those institutions receiving NIH research support appear to 
have implemented the Bayh-Dole legislation effectively and in good 
faith. 

Thank you, Mr. Chairman. I would be happy to answer any ques- 
tions. 

[Ms. Chamblee submitted the following:] 

Prepared Statement of Daryl A. Chamblee 

Mr. Chairman, I am pleased to appear before you today on behalf of Dr. Harold 
Varmus, the Director of the National Institutes of Health (NIH) to discuss the role 
of the NIH under the Bayh-Dole Act in the commercialization of technology that has 
been developed in part through NIH-supported biomedical research. 

The mission of NIH is the pursuit of science to improve human health. In further- 
ance of this mission, NIH expends approximately 80 percent of its $11 billion budget 
to support research and research training in institutions throughout the Nation. 
This is what we call extramural research to distinguish it from research undertaken 
by our own scientists in our intramural laboratories. Our agency's competitive extra- 
mural awards include over 28,000 research grants and about 1,400 contracts involv- 
ing some 1,700 universities, medical centers and research institutions. 

NIH and the institutions it funds conduct cutting-edge research that is vital to 
the continued strengthening and expansion of our national biomedical research en- 
terprise from which many stunning discoveries have emerged over the last two to 
three decades. Through efficient technology transfer mechanisms, these discoveries 
can be translated into actual commercial products or processes that will prevent the 
spread of infectious diseases, reduce the incidence of various deadly illnesses, and 
relieve human pain and suffering. 

For example, NIH grants have led to the development of an innovative 
Hemophilus influenza type B conjugate vaccine, which, in the first year following 
hcensure, was administered to infants with significant success, namely, the signifi- 
cant reduction in the occurrence of, and death from meningitis. NIH funding has 
also supported the development of synthetic hormone hypothalamic releasing hor- 
mones, which have been marketed and are used for treatment of prostate and breast 
cancer, endometriosis, and precocious puberty. 

Technologies, such as the ones used for these products, represent only a small 
sampUng of the myriad of lifesaving technologies that have been developed with 
NIH support. 

objectives of the BAYH-DOLE ACT 

The Bayh-Dole Act, which governs the transfer of technology from NIH-funded re- 
search institutions to industry, is central to our efforts to facilitate the development 
of useful preventive, diagnostic, and therapeutic products. Through this Act, the 
Congress has: 

• encouraged collaboration between commercial concerns and nonprofit organiza- 
tions, such as universities; 

• promoted the patenting and Hcensing of inventions developed with Government 
funding; and, 

• given preference in such activities to small business firms and those who manu- 
facture in the United States. 

In the interests of expediting technology transfer and minimizing the administra- 
tive costs under Bayh-Dole, non-profit institutions are automatically granted first 



23 

rights to inventions made by their employees without the funding agency's prior ap- 
proval. In short, the institutions have the right to own the inventions developed 
through Federal funds. 

Prior to enactment of the Bayh-Dole Act, rights to inventions developed with Gov- 
ernment support either were generally assigned to the funding agency and were 
made available to the public through licensing on a nonexclusive basis or were dedi- 
cated to the pubhc through publication of research results. 

Recognizing that this approach was stifling collaborations between commercial 
concerns and non-profit organizations, discouraging the patenting and licensing of 
federally funded inventions, and adversely impacting small business, in 1969, the 
Department of Health, Education and Welfare (HEW), the predecessor of the De- 
partment of Health and Human Services (DHHS), adopted a policy of granting lim- 
ited exclusive licenses to HEW-owned inventions when such action would serve the 
public interest. HEW's regulations also provided that the rights to inventions devel- 
oped by non-profit institutions under NIH research grant and contract awards could 
be retained by the institution if the Department determined, on a case-by-case basis, 
that the institution's established procedures could assure the availability of the in- 
vention without unreasonable restrictions or excessive royalties. Further, HEW re- 
quired that the Government receive a royalty-free, nonexclusive license with the 
right to issue sublicenses for all governmental purposes. 

HEW implemented these provisions through Institutional Patent Agreements" 
(IPAs), which set forth the terms under which an approved institution would retain 
title to its inventions and the conditions under which they would be licensed. Prior 
to this program's initiation, it appears that not a single drug had been developed 
and marketed from HEW-supported research. While HEW's system was a major im- 
provement resulting in "a number of potentially important new drugs [being] * * * 
delivered to the pubhc through the program involvement of private industry in de- 
veloping, testing, and marketing these discoveries," the program eventually became 
burdened with administrative delays associated with the case by case review of pat- 
ent ownership by the agency. 

Moreover, it had become increasingly clear that throughout the Federal govern- 
ment, the agencies had failed in their efforts to "* * * deUver new inventions and 
processes from their research and development programs to the marketplace where 
they can benefit the pubhc." In fact, evidence from a 1976 hearing on "Government 
Patent Policy" before the House Science and Technology Subcommittee on Domestic 
and International Scientific Planning and Analysis indicated that, of the more that 
28,000 patents in the Government's patent portfoUo, less than four percent had been 
successftilly licensed. On the other hand, universities that could offer exclusive or 
partially exclusive hcenses on their patents if necessary, seemed to fare much better 
by licensing 33 percent of their patent portfolios. 

Therefore, in 1980, encouraged by the early success of HEWs innovative IPA pro- 
gram and predicated on the belief that inventions were more likely to be commer- 
cialized if the contractor or grantee, rather than the Government, could retain pat- 
ent rights, the Bayh-Dole Act, sponsored by this Committee, was passed. 

SUCCESSES OF THE BAYH-DOLE ACT 

Fourteen years later it seems that, indeed, new efficiencies have been realized as 
incentives have been established, and innovative systems have developed to enhance 
rather than impede technology transfer. Since the passage of the Act, patenting and 
licensing are being pursued more aggressively and university/industry collaborations 
have proliferated. According to the National Science Foundation (NSF), about one 
in every four university patents issued in the late 1980's was for a biomedical or 
health-related invention. In the early 1970's, the ratio has been about one in eight. 

Over the past 14 years, the development of many new, important drugs and de- 
vices by both large and small commercial enterprises have been facilitated by the 
explosion in the licensing of university-owned inventions. According to a recent sur- 
vey conducted by the Association of University Technology Managers, well over 1000 
Ucenses or options were executed in Fiscal Year 1992 by the 260 institutions that 
were surveyed. In addition, these institutions reported that they had over 5000 ac- 
tive licenses in place at the time of the survey. 

Also of significant note is the trend by which industrial funding of academic re- 
search is increasing, as encouraged by the Bayh-Dole Act. This includes fundamen- 
tal research. Because increases in the NIH appropriations have not kept pace with 
the rapidly-expanding research opportunities, research institutions have had to look 
elsewhere for support. For example, during Fiscal Year 1993, NIH was able to fund 
only 24.5 percent of research grant applications submitted by universities and other 
non-profit research institutions. Of note is the fact that during the 1970's and 



24 

1980's, industrial siipport for university research grew faster than did any other 
source of funding. While still representing less than 10 percent of the total funding 
for academic research, the NSF recently estimated that nearly 2 percent of U.S. in- 
dustry's expenditures for R&D now goes to academic institutions, as compared with 
less than 1 percent in 1971. 

Science has also become increasingly international, and partnerships between 
U.S. universities.small U.S. biotechnology companies, and large multinational com- 
panies have increased. 

RECENT ISSUES CONCERNING THE BAYH-DOLE ACT 

The heightened involvement of industry in academic research and the potential 
problems associated with such involvement were first addressed in a series of hear- 
ings convened by the House Science and Technology Subcommittee on Investigations 
and Oversight. At that time, the Committee noted its "continuing concern that our 
universities * * * may be permanently altered by the increasing number of com- 
mercial agreements * * *." Although not viewing such agreements as "bad, per se," 
the Committee did warn of the potential to "adversely affect one of America's great- 
est strengths" — the Nation's research universities. 

Specific concerns of the Committee, at that time, included whether research sup- 
port or sponsored research agreements, by which a company provides money to an 
institution in return for rights to the institution's intellectual property, would stifle 
the free exchange of knowledge, promote secrecy, and distort academic research pri- 
orities to conform with commercial aims. A second set of concerns arose from specu- 
lation that companies might exploit taxpayer-funded research without providing an 
adequate return to the public. A troubling issue was the possibility that a foreign 
firm might, "skim the cream produced by decades of taxpayer-fijnded work." Also 
raised as an issue was the prospect that universities did not have effective mecha- 
nisms to safeguard the integrity of academic institutions and to protect them from 
influences that might distort their missions of education, research, and pubhc serv- 
ice. 

REVIEW OF SPONSORED RESEARCH AGREEMENTS 

Over the last year, the NIH has made an extensive efibrt to learn more about the 
types of interactions that our grantee institutions have with industry so as to deter- 
mine whether the Bayh-Dole Act is achieving its ultimate purposes and to evaluate 
whether institutions are generally compljdng with its terms and, in the process, pre- 
serving the goals and integrity of academic research. Through our efforts, we have 
concluded that the Bayh-Dole Act appears to be working well and that the concerns 
raised by Congress a decade ago have not significantly materialized. However, the 
need for NIH to provide guidance to its grantees in their interactions with industry 
is recognized ana the NIH is attempting to meet that need. 

Although the interactions between our grantees and industry take many forms in- 
cluding industrial liaison programs, spinoff companies, consortiums, commercial li- 
censing, material transfer, consulting, and clinical trial agreements, the NIH has fo- 
cused a substantial amount of its attention on what it refers to as university/indus- 
try-sponsored research agreements to distinguish this type of collaboration from 
other types of interactions or means of commercializing research. To develop respon- 
sible pubUc pohcy in this area, the NIH established an Internal Task Force on the 
Commercialization of Intellectual Property Rights from NIH-supported Extramural 
Research. This group analyzed 375 sponsored research agreements, held informal 
roundtable discussions with other government agencies, grantee institutions and in- 
dustry, and recently convened an outside panel of experts in a public forum to dis- 
cuss specific issues related to sponsored research agreements. 

The information derived from the informal meetings, together with the results 
from NIH's survey of sponsored research agreements and the recommendations and 
comments we received from our panel of outside experts at the recent forum, will 
provide the basis for the policy guidance we are developing to assist our grantees 
and strengthen their future efforts to comply with Bayh-Dole. We intend to present 
the draft guidelines to the Advisory Committee to the Director of NIH in June of 
this year for review, comment and eventual dissemination. 

Most of the sponsored research agreements that NIH reviewed as part of its sur- 
vey, i.e., 331 (88 percent) of the 375 agreements, represented small, project specific 
arrangements that typically involved the work of only one or two academic scientists 
and covered narrowly defined research areas. Moreover, 85 percent of all the agree- 
ments were for periods of 5 years or less. Only 44 agreements were considered large- 
scale, in that they involve a major component of the institution or the entire intel- 
lectual property output of a research institution. 



25 

In most cases, licensing rights were promised to industrial partners in advance, 
but the vast majority of the agreements restricted the industrial partner's intellec- 
tual property rights to particular projects or discrete fields of research. Slightly 
under half, or 167 of the 375 agreements, were with small business partners. 
Eighty-seven percent of the agreements involved U.S. corporations or domestic sub- 
simaries of non-U. S. companies. 

From our two ad hoc meetings with industry and grantee representatives, we 
learned that the overall consensus in the research community, is that the current 
statutory framework for technology transfer has been effective. 

The participants at these meetings stressed that the imposition of an additional 
set of rigid or elaborate federal rules could prove unwieldy and perhaps disastrous 
to often fragile university/industry relationships. However, because varying levels of 
experience in university technology transfer offices and ambiguities in the Bayh- 
Dole Act have caused increasing levels of uncertainty and some confusion in the aca- 
demic community, the participants agreed that guidance from the NIH would be 
helpful. 

Our meeting with representatives from other Federal agencies including the De- 
partments of Commerce, Energy, Defense, and Agriculture, the National Science 
Foundation, the Advanced Research Projects Agency, and the Internal Revenue 
Service primarily focused on the degree and type of oversight that Federal agencies 
currently exercise or should exercise in relation to collaborations between grantee 
institutions and industry. Agency representatives seemed to prefer improved dis- 
semination of information and education of the research community as to their obli- 
gations under the Bayh-Dole Act rather than the imposition of stringent rules. They 
also agreed that the great diversity of agreements that are being developed and the 
differences across agencies make it difficult to delineate a single set of fixed stand- 
ards. Further, while stringent rules might be appropriate for an agency that pri- 
marily awards contracts, it would perhaps not be appropriate for an agency pri- 
marily providing assistance in the form of grants where the amount of the grant 
is much less. 

PUBLIC FORUM ON SPONSORED RESEARCH AGREEMENTS 

Based on our ooservations and the recognition of a possible policy void in this 
area, on January 25 and 26, 1994, the NIH convened an outside panel of experts 
in a public forum to explore and define the nature and scope of NIH's role witn re- 
spect to certain provisions of the Bayh-Dole Act. The Panel specifically addressed 
the following issues: 

• What factors should the NIH consider with regard to the size of asponsored re- 
search agreement and the scope of the industrial partner's intellectual property 
rights to Federally-funded research when evaluating compUance with the Act's 
licensing preference for small businesses? 

• How should the NIH implement and monitor the Act's U.S. manufacturing re- 
quirement and preference for U.S. industry, given the increasing globalization 
of markets and the emergence of multinational corporations? 

• How should the NIH monitor and ensure that the Act's objective of promoting 
the utilization of inventions derived from Federally-funded research is being 
met? 

• What is the most effective way for the NIH and grantee institutions to ensure 
that small businesses are given adequate access to results of Federally-funded 
research? 

• What should be the role of NIH with respect to safeguarding core principles of 
research freedom and scientific integrity in interactions between its grantees 
and industry? 

The 12-member Panel, co-chaired by David M. Livingston, M.D. of the Dana 
Farber Cancer Institute in Boston, MA, and Edward Penhoet, Ph.D. of Chiron Cor- 
poration in Emeryville, CA, included research scientists, a Nobel Laureate, patent 
attorneys, executives and administrators from large pharmaceutical companies, 
State and private universities, research institutions and hospitals, and small bio- 
technology companies. 

The members of the Panel generally agreed that the Bayh-Dole Act has been ef- 
fective in promoting technology transfer. As it has been implemented, it provides 
benefits for those conducting Federally-funded research, it also serves the public in- 
terest by stimulating local economies and providing an efficient mechanism for de- 
veloping Federally-mnded research into useful commercial products. The Panel 
therefore advised the NIH against the implementation of stringent rules and/or fur- 
ther regulations. However, the Panel also recognized the usefulness of some guid- 



26 

ance from the NIH to its grantees so that they may better comply with certain re- 
quirements of the Act. 

In response to NIH's request for meaningful dialogue on and consideration ot the 
issues noted above, and after considering the views of other forum participants, 
drawn mainly from the academic and corporate research communities, the panel 
drew the following conclusions relative to the five specific questions regarding NIH's 
role in ensuring compliance with the Bayh-Dole Act: 

I. Certain features of university/industry-sponsored research agreements 
are useful alerts for additional scrutiny. Heightened scrutiny is advised for 
all exceptionally large, or "mega-scale" agreements and may also be advised 
for those that meet one or several threshold criteria, such as (1) exceeding 
$5 million per year or $50 million overall, (2) involving several principal in- 
vestigators or entire departments or major components of an institution, or 
(3) specifying rights to technology for an undue period of time. The Panel 
cautioned against the mandatory review of these agreements by the NIH, 
noting that the undue administrative burden on grantees and the adverse 
impact on technology transfer could far outweigh any actual benefit that 
could be derived from a mandatory review. 

II. NIH should regard a number of economic factors when considering 
waivers of the U.S. manufacturing requirement. The Panel urged NIH offi- 
cials to continue to implement a flexible policy for fulfilling this part of the 
law since, in the biomedical area it may not be commercially feasible to 
manufacture the product in the United States. Moreover, important public 
health and other economic benefits could be lost, if product development is 
delayed because of rigid enforcement of this provision. 

The Panel also noted that, as national boundaries are increasingly ig- 
nored while science and science-based industries become more global in 
focus, it is becoming increasingly difficult to distinguish foreign and domes- 
tic entities. Moreover, these distinctions can be muddled further when a so- 
called U.S. corporation chooses to manufacture certain products in off-shore 
facilities or when a foreign corporation manufactures its products at a U.S. 

subsidiary. , ,. i- 

III. The Panel recommended that the primary responsibihty for ensuring 
that Federally-supported research is being licensed and made available as 
well as being useful to the public, should reside with grantee institutions. 
Noting that grantees are more familiar with the licensed technology, capa- 
bilities of the licensee, and the market for a particular product, the Panel 
underscored the fact that the institutions are far better suited than the 
NIH to undertake the responsibility of overseeing compliance with the utiU- 
zation requirement of the Act. The Panel indicated that the use and active 
enforcement of performance benchmarks and diligence requirements would 
greatly enhance grantees' capabilities to meet this oversight responsibihty. 

IV. After recognizing that fair access of small businesses to Federally- 
funded research at grantee institutions is not a problem, the Panel rec- 
ommended certain safeguards that would be useful for grantees to imple- 
ment. For example, option periods for granting Ucenses should be time lim- 
ited so that other companies may have timely opportunities to license tech- 
nology; and once a company decides not to exercise its option right it should 
not be given a second opportunity to obtain such rights by matching an- 
other party offer for the rights. In addition, the Panel noted the importance 
of looking at fair access in terms of the entire research program at an insti- 
tution as opposed to access to a particular project or invention. 

The Panel also suggested that the NIH take a lead role in promoting 
basic principles of research freedom by providing guidance through policy 
statements or other educational materials. According to the Panel, such 
statements or materials should stress the freedom of researchers to choose 
projects; to collaborate with other academic scientists; to decide whether or 
not to participate in sponsored research agreement programs; and to pub- 
lish and otherwise disseminate research findings. 
On the fundamental issue of the NIH role in assuring that grantees comply with 
requirements of the Bayh-Dole Act, Panel members recommended that NIH develop 
general guideUnes or other educational materials to be used by administrators and 
scientists at universities and other non-profit institutions. Panel members believe 
that these guidance materials should be presented by NIH to grantees as informal 
examples and "points to consider," not as binding rules for universities and other 
institutions The only exception to the Panel's recommendation for non-binding 



27 

guidelines relates to issues of academic freedom, which the Panel urged NIH to up- 
hold forcefully and unequivocally. 

Panel members not only recommended against new restrictions, but also urged 
NIH not to increase reporting requirements, which absorb resources, such as time 
and personnel, and would thus tend to retard the overall process of technology 
transfer and conflict with a stated objective of the Bayh-Dole Act to minimize the 
cost of administering patents. 

The NIH will consider the Panel's recommendations as it develops public policy 
in this area. 

CONCLUSION 

The NIH has learned through its review and analysis of sponsored research agree- 
ments that the situations covered by the agreements are often unique and multi- 
farious, requiring delicate balancing of risks and benefits to the parties involved. In 
our review, we found that, although certain factors necessitated more scrutiny than 
others, no one factor or provision was fatal. Rather, the jttxtaposition of multiple 
problematic factors or clauses in an agreement sometimes tipped the scale in favor 
of the interests of an industrial partner at the expense of the research institution 
or the public, thus upsetting an otherwise appropriate balance. 

In general, NIH found no marked trend per se towards the large-scale or mega- 
deals. Abuse of the provision and objectives of the Bayh-Dole Act was not wide- 
spread and efforts towards compliance appeared creative and effective. 

Technology transfer is the vehicle through which the fruits of NIH funded re- 
search are transferred to industry to be ultimately developed into diagnostic and 
therapeutic products to advance human health. In a dynamic, multifaceted, multi- 
national marketplace, if the United States is to remain a world leader in techno- 
logical and scientific innovation, both the public and private sectors must work to- 
gether to foster rapid development and commercialization of useful products to bene- 
fit human health, stimulate the economy and enhance our international competitive- 
ness, — while at the same time protecting taxpayers' investment and safeguarding 
the principles of scientific integrity and academic freedom. 



Department of Health and Human Services, 

Public Health Service, 

Bethesda, MD. 

Hon. Dennis DeConce^ji, 
U.S. Senate, Washington, DC. 

Dear Senator DeConcini: Thank you for your thoughtful letter of April 29 and 
for providing The the opportunity to testify at the April 19 hearing of vour Sub- 
committee on "The Bayh-Dole Act: A Review of Patent Issues in Federally Funded 
Research." 

During the hearing incorrect figures were presented by one of the witnesses re- 
garding the number of Cooperative Research and Development Agreements 
(CRADAs) at the National Institutes of Health in 1993. These figures appear to 
have been taken from erroneous data contained on page 83 of a recent Institute of 
Medicine (lOM) report entitled, "Development of Anti-Addiction Medications: Issues 
for the Grovernment and Private Sector." I have subsequently received frog lOM the 
enclosed erratum addressing the erroneous information, which I would like to be in- 
cluded in the hearing record. 

I appreciate your consideration of my request and would be pleased to provide any 
additional information necessary. 

Sincerely, 

Daryl a. (Sandy) Chamblee, J.D., 

Acting Deputy Director, 
Science Policy Technology Transfer. 



Erratum 



On page 83 of this report it is stated that the number of Cooperative Research 
and Development Agreements (CRADAs) at the National Institutes of Health have 
"dropped from 126 in 1992 to about 26 in 1993". Thai information compared the 
total CRADA in 1992 (NIH Data Book, 1993) with newly initiated CRADAs in 1993 
(personal communication with NIH. Office of Technology Transfer). This sentence 
should be deleted, because, at this time, the Office of Technology Transfer is in the 



28 

process of reconciling their records with the numbers of CRADAs recorded for each 
institute. The committee's recommendation remains unaffected. 

Senator DeConcini. Thank you, Dr. Chamblee, very much. 

I know you are aware of the infamous case of Scripps, which gar- 
nered so much negative attention. 

Would you explain the background of this agreement to the sub- 
committee? What has NIH done to prevent this kind of agreement 
from happening in the future? 

Ms. Chamblee. I might say that the genesis of much of our activ- 
ity of late in this area was as a result of that particular agreement. 
When it came to our attention, we asked for a copy of the agree- 
ment and had proceeded basically along parallel tracks. In other 
words, we have reviewed the agreement, raised concerns about the 
agreement, and have gone through a series of discussions with the 
Scripps' representatives — Scripps being our grantee — to try to iron 
out some of our concerns. 

At the same time, we have gone down the other track of trying 
to see whether sponsored research agreement — of which this is 
one — generally out in the community were of the same nature, that 
is, a very broad agreement covering the research output of an en- 
tire institution and raising various types of concerns about aca- 
demic freedom and access of small business to the results of the re- 
search and that sort of thing. 

We are trying to look at the agreement. We have been looking 
at the agreement. We have been discussing our concerns with 
Scripps through a series of meetings hoping that the agreement 
can be resolved in such a way that it will be useful to all parties 
concerned. And at the same time, the review of other agreements 
that I discussed was the result of our desire to see if there were 
other agreements like that in the community. 

Senator DeConcini. But you don't know whether this was just 
an aberration or how many other cases there are? 

Ms. Chamblee. Based upon our review, it is an aberration. 

Senator DeConcini. What would be your generic solution to pre- 
vent this from happening again? Does NIH have an answer that 
would involve some condition be attached to the grants, other than 
perhaps getting involved with setting the price of the final product? 

Ms. Chamblee. The solution that we think is the most appro- 
priate under the circumstances is a solution based upon guidance 
to our grantees and vigilance. As part of this process of looking at 
the 375 agreements and having a public discussion of the benefits 
and/or advantages and disadvantages of sponsored research agree- 
ments, we will come up with guidelines for our grantees or points 
for them to consider when entering into these types of agreements. 

Senator DeConcini. What is the hammer? That you might not 
get another grant if you don't cooperate? 

Ms. Chamblee. That is an ultimate hammer, and it is an effec- 
tive hammer, but 

Senator DeConcini. So you would consult with them about it on 
the basis that you think it is in their best interest, as well as 
yours, that they include these things in the license agreement be- 
cause you don't want something like this to occur? 

Ms. Chamblee. When we are talking about sponsored research 
agreements, we are way before the stage of a license agreement. 



29 

We are talking about collaboration sometimes at a very, very early 
stage. Although we recognize that our grantees must be mindful of 
what comes down the pike and what sorts of clauses are in the ulti- 
mate license agreements that might be generated, we are talking 
at a stage that is much farther back in the whole continuum than 
a licensing clause. 

But as I said before, our grantees have been very forthcoming in 
addressing our concerns and are looking for guidance from us as 
far as what they should be looking for and what problems may be 
raised by these kinds of agreements. 

Senator DeConcini. Are you satisfied that the universities mon- 
itor these license agreements? I know the panel that was put to- 
gether recommended that to ensure Federal support of research 
that is being licensed, that the responsibility should stay and re- 
side with the universities instead of the Federal Government. Are 
you satisfied that the universities monitor these, with the exception 
of Scripps? 

Ms. Chamblee. I think they are monitoring them. I think that 
in the future — we have a role as far as monitoring and vigilance 
as well. I think that our role has to be a balanced one. To a large 
extent, we must rely on our grantees to act in good faith and to 
watch also for the incentives to them to make sure that they are 
licensing appropriate and getting appropriate royalties back, be- 
cause that goes back into their coffers and benefits their research. 

I think that kind of a balanced vigilance on both of our parts is 
very necessary. 

Senator DeCoNCINI. The underlying legislation indicates re- 
search and licenses to U.S. industry. How does NIH interpret this 
as to off-shore licensing? Is that permitted? 

Ms. Chamblee. Well, there is a provision that products to be 
used and sold in the United States that are licensed under exclu- 
sive licenses be substantially manufactured in the United States. 
That is a requirement, although there is a provision for a waiver 
in circumstances where it is not commercially feasible to produce 
or manufacture a product in the United States. 

The legislation was probably written that way because it is hard 
to decipher what is really a U.S. company versus what is not in 
this kind of global world that we are currently living in. 

Senator DeConcini. Under the current regulations, I understand 
that the universities can and do grant exclusive licenses. Does the 
NIH object to the granting of exclusive licenses? 

Ms. Chamblee. I don't think we object to it where it is appro- 
priate, no. 

Senator DeConcini. There is a provision in this bill, which 
maybe you can explain to me. It is termed here as the march-in 
rights of the Federal Government. Does this mean that if the Fed- 
eral agency determines that a licensee is not making good use of 
the product the licensee can be forced to provide a nonexclusive li- 
cense to another entity? Is that in essence what that is? Has it 
been used? 

Ms. Chamblee. When there was a shift that was occasioned by 
Bayh-Dole that took NIH and the Federal Government out of the 
middle of commercializing all the products of the research that we 
funded — that march-in right was left to us. That is what I call one 



91-388 - 95 - 2 



30 

of the residual rights that we retained when we were taken out of 
the middle. 

In the event that there is a situation where a product is not 
being utilized or developed, we do have those rights. We have not 
in the past used them. Sometimes just — as you mentioned before — 
the ability to say that you are concerned with what they are doing 
and that their grant is endanger is an ability to influence. Some- 
times the ability to say that we are concerned about the develop- 
ment and ask them to explain to us how the product is being devel- 
oped. 

Having in your back pocket march-in rights is enough. We have 
not had to 

Senator DeConcini. You have never used them? 

Ms. Chamblee. No, we have not. 

Senator DeConcini. But you wouldn't hesitate to use them if you 
felt it was necessary? 

Ms. Chamblee. As I said, we have been taken out of the middle 
of this. The notion is that they would be used extremely sparingly. 
I think we would have to look very cautiously at a situation that 
would justify that. 

Senator DeConcini. And you haven't had any examples come to 
your attention? 

Ms. Chamblee. No, we have not. 

Senator DeConcini. Thank you very much. Dr. Chamblee. We 
appreciate your testimony today. It is very helpful. 

Ms. Chamblee. Thank you. 

Senator DeConcini. Our last panel will be Dr. Gary Munsinger, 
president, Research Corporation Technology; Dr. Charles M. Vest, 
President, MIT; Ms. Barbara Conta, director of Technology Trans- 
fer, Regeneron Pharmaceutical Corporation; and Howard Bremer, 
Association of University Technology Managers. 

Would you ladies and gentleman would all come forward, please? 

We will begin with Dr. Bremer. 

You may all insert your full statements in the record and I would 
appreciate it if you would summarize them for us. 

Mr. Bremer? 

STATEMENT OF HOWARD BREMER, ASSOCIATION OF 
UNIVERSITY TECHNOLOGY MANAGERS, MADISON, WI 

Mr. Bremer. Thank you, Mr. Chairman. 

The organizations for which I speak today are the Association of 
University Technology Managers and the Council on Governmental 
Relations. 

I personally also appreciate the opportunity to present the collec- 
tive views we all have on the experience and success of technology 
transfer under Bayh-Dole. 

Rather than focus on statistics today, which are adequately sup- 
plied in the written testimony, I believe the current political cli- 
mate makes it advisable to review Bayh-Dole in the background 
and philosophy of the act, with which many are not familiar. At the 
outset, in assessing the impact of the Bayh-Dole Act, we must keep 
in mind two very significant facts. One, the university system in 
the United States is unique in the world in its contributions to the 
competitive position of the United States in the global economy. 



31 

Two, small business is the major contributor to jobs in the United 
States through innovation. 

We must also not lose sight of the fact that the Bayh-Dole Act 
arose out of an evolutional process based upon imaginative fore- 
sight in a very hostile bureaucratic and legislative environment 
and upon experience. Prior to the passage of Bayh-Dole, the con- 
tractor university had the opportunity to petition for greater rights, 
including the transfer of title under any inventions made with Fed- 
eral funds before certain of the Government agencies. 

Generally in the few cases where such greater rights were con- 
veyed, the rights were so fraught with restrictions on the licensee 
that they were unacceptable to the intended industrial partner, 
and therefore the technology was never transferred. Then after 
many years of effort, beginning in the early 1960's, an institutional 
patent agreement, or IPA, was negotiated with what was then the 
Department of Health, Education, and Welfare. The first IPA be- 
came effective in 1968. 

Under that arrangement, titHng the inventions made with funds 
provided by that agency were passed to the universities subject to 
certain limitations. After another 5 years of negotiation with the 
National Science Foundation, that agency, too, in 1973 adopted the 
IPA approach with perhaps slightly greater restrictions. 

These IPA's and the experience generated in practice under them 
led ultimately to the Bayh-Dole Act and its passage in 1980. Con- 
sequently, the Bayh-Dole Act, as well as its implementing regula- 
tions, were crafted not in a vacuum but as a result of past experi- 
ence gained in practice under the IPA's. The act was, in essence, 
a codification of most of the terms and provisions negotiated into 
the IPA's by the universities and the two agencies I mentioned. 
That means, of course, that the principles of Bayh-Dole have been 
working, and have been working well since long before the date of 
the act itself, but not on a Government-wide basis. 

Technology transfer under Bayh-Dole, too, has been evolutionary 
with a larger number of universities and nonprofit organizations 
who are participating in each succeeding year, all to the benefit of 
society. In 1993, the total number of patents issued to universities 
numbered 1,670, and when hospitals and nonprofit organizations 
who qualify for treatment under Bayh-Dole are added, the total 
number of patents issued becomes 2,024. It is also worthy to note 
that the patents were issued to 134 separate universities and 29 
separate hospitals and nonprofit organizations. 

The real measure of technology transfer is not of course the num- 
ber of patents which the university sector holds, but the amount 
of technology represented by those patents, which have been trans- 
ferred for development for the marketplace. In a very recent survey 
by the Association of University Technology Managers, in an effort 
to provide evidence that university efforts are indeed responsive to 
the principles of Bayh-Dole and achieving the goals it envisioned, 
I have the following information. 

A response obtained from 44 institutions which did participate 
reported that 178 products in the market have been licensed to 439 
entities. Of the licenses granted, 312 are nonexclusive and 127 are 
exclusive. But whether exclusive or nonexclusive, about 60 percent 



32 

have been with small business and the remaining percentage with 
large business. 

The formation of a total of 338 start-up companies since 1980 
were dependent upon the licensing of the institution's technology 
for initiation. Those were 36 respondents. Of the 178 products re- 
ported in the survey, 35 new companies were created in support of 
the inventions and discoveries. 

The data is without question rather significant when viewed 
from an economic perspective. But what should not be overlooked 
is the inestimable value of products arising from university inven- 
tions which have or exhibit the capabilities of saving lives or im- 
proving the lives, safety, and health of the citizens of the United 
States and around the world. 

Those statistics and the testimony of others here today will clear- 
ly bear out the position that we have taken. I believe it can be un- 
equivocally said that practice under the Bayh-Dole Act has been 
fully responsive to the policies and objectives which Congress 
sought in the passage of the act, as recited in 35 USC section 200. 

Why has the act been so successful? I believe one of the major 
reasons is the certainty of title to the inventions, which was con- 
veyed to the universities under the act. That fact alone gave strong 
impetus to the university-industry relationship. Industry could rely 
upon the licensing terms and provisions negotiated because of the 
vesting of the title in the university and without fear that there 
would be arbitrary or capricious bureaucratic interference. Since 
the Government reserved a nonexclusive license for governmental 
purposes, the relation established was really a relationship be- 
tween the university, industry, and the Government. 

Moreover, and based upon increasing experience, industry be- 
came familiar with and comfortable with the protective provisions 
in Bayh-Dole, the foremost of which was the march-in right provi- 
sion that Dr. Chamblee mentioned. It became evident that the 
march-in could not be arbitrarily applied by the Federal agency in 
a licensing situation. 

Another reason for the success of Bayh-Dole was that the inven- 
tors became part of the technology transfer equation by interfacing 
directly with the licensee, a situation that did not happen when 
Government agencies were taking title to inventions made with 
Federal funds. 

Still another factor was that Bayh-Dole and its implementing 
regulations arose out of experience and therefore contained 
thoughtfully considered and reasonable protective provisions 
against abusive practice by the university licensor and its licensee 
and against arbitrary decisions by the Government agencies, while 
still affording necessary protective mechanisms in the national in- 
terest. 

Bayh-Dole has carefully balanced the interests of the parties af- 
fected — that is, the universities, the private sector, and the Govern- 
ment. Because of that background, the principles upon which the 
act was based and its terms and provisions, as well as its imple- 
menting regulations, are as viable and timely today and for the fu- 
ture as when the act was passed in 1980. 

Also not to be overlooked is that Bayh-Dole was the first piece 
of legislation to explicitly convey to the Government the right to 



33 

own patents. The direct outgrowth of that provision was the Fed- 
eral Technology Transfer Act, which was referred to earlier. That 
- act was intended to promote utilization of technology generated in 
Government-owned and operated laboratories. It was largely a re- 
sponse to increasingly tough international competition facing the 
United States. 

Its principles were first tested under Bayh-Dole and many of its 
provisions comport fully with those in the Bayh-Dole Act. It thus 
responded to the lessons learned under Bayh-Dole, perhaps the 
most important of which was Bayh-Dole's success in promoting uni- 
versity and industry cooperation. 

One of my colleagues just before this meeting said to me: 

Remember that Bayh-Dole was one of the very few, perhaps the only piece of leg- 
islation with a very positive impact on the economy, but which required no appro- 
priation from commerce. 

Mr. Chairman, because of the time factors, that will conclude my 
oral testimony. The opportunity to present it is appreciated. I 
would, however, like to put into the record of this hearing two pam- 
phlets which were generated by the Council on Governmental Rela- 
tions relating to Bayh-Dole and to technology transfer under that 
act, and also a key note address which I gave to the Texas Tech- 
nology Transfer Association in September 1992 entitled, "10 Years 
after Public Law 96-517," which more completely outlines the 
background and effect of the Bayh-Dole Act and supports its con- 
tinuing viability. 

Thank you. 

[Mr. Bremer submitted the following:] 

Prepared Statement of Howard W. Bremer 

SUMMARY 

• The Bayh-Dole Act was a recognition by Congress of the shortcomings of exist- 
ing government patent policies. 

• It was a recognition that placing the stewardship of the results of basic research 
in the hands of the universities and small business is in the public interest. 

• It was a recognition that the inventor is a significant factor in the technology 
transfer equation. 

• The assurance of certainty of title in the universities in inventions made with 
Federal funds under Bayh-Dole and uniform government- wide implementing 
regulations were key in providing impetus to new and expanding university-in- 
dustry relationships. 

• Bayh-Dole has promoted both private sector and government investments in 
university research. 

• The universities have been singularly successful in transferring technology 
under Bayh-Dole to the benefit of the public. 

• Bayh-Dole has promoted job growth at least in part because of its focus on the 
small business sector. 

• Bayh-Dole, in balancing the interests of both the academic and commercial sec- 
tors, has fostered university-industry relationships that have strengthened U.S. 
competitiveness. 

• The principles upon which the Bayh-Dole Act was based and its terms and pro- 
visions as well as its implementing regulations are as timely today and for the 
future as when the Act was passed in 1980. 



Mr. Chairman and Members of the Subcommittee: The organizations for which I 
speak today and I, personally, appreciate the opportunity to present our collective 
views and experience on the success of technology transfer under the Bayh-Dole Act 
(PL 96-517). 



34 

The Association of University Technology Managers (AUTM) is a professional as- 
sociation of individuals, primarily from universities, teaching hospitals and other 
non-profit research entities including patent management organizations, who are 
engaged in or connected with the transfer of technology generated during the course 
of research conducted at and by such entities to the marketplace. AUTM currently 
has over 1,100 members which represent in the membership over 300 such entities. 

The Council on Governmental Relations (COGR) counts among its membership 
137 of the leading research universities in the United States which, as a group, are 
the recipients of over 90 percent of the funds made available to higher education 
institutions through contracts and grants for scientific activities. 

AUTM and COGR consider the Bayh/Dole Act to be a landmark piece of legisla- 
tion, the principles of which and the Act itself being sound public policy in 1981 
when the Act became effective. AUTM and COGR also consider that the amend- 
ments to Bayh-Dole made by PL 98-620 in 1984 enhanced the effectiveness of the 
Bayh-Dole Act as a solid and reliable basis for the transfer of technology generated 
in whole or in part from the expenditure of Federal funds and that Bayh-Dole is 
still sound public policy for today and the future. 

BACKGROUND AND PRINCIPLES OF BAYH-DOLE 

Prior to passage of the Bayh-Dole Act, it was the policy of government agencies 
to take title to all inventions which were made in whole or part through the expend- 
iture of Federal funds. At the outset, one must presume that federal (tax) dollars 
are spent in support of research so that the public will ultimately benefit from the 
results of that research. The agencies, in embracing the "title" policy toward inven- 
tions made with federal funds were singularly unsuccessful in transferring the tech- 
nology represented by those inventions to which they held title to the public for its 
benefit. The bureaucratic red tape which accompanied any attempt at innovation 
was simply too great a disincentive to any company seeking to license directly from 
the government. As a consequence, government agencies obtained and held patents 
on many inventions but the technology represented by most of those inventions and 
patents was never transferred to the public because of the absence of a realistic 
technology transfer policy in the government agencies. 

The Bayh-Dole Act recognized the shortcomings of the existing government patent 
policies and sought to correct them. It represented a recognition by Congress: 

1) that imagination and creativity are tnily a national resource; 

2) that the patent system is the vehicle which permits the delivery of that re- 
source to the public; 

3) that placing the stewardship of the results of basic research in the hands of 
the universities and small business is in the public interest; and, perhaps 
most significantly; 

4) that the existing federal patent policy was placing the nation in peril during 
a time when innovation was becoming the preferred currency in foreign af- 
fairs. 

It was also a recognition that the inventor is a significant factor in the technology 
transfer equation. Through the "title" policy the government had no access to the 
inventor to provide the necessary bridge from invention to innovation. Without that 
bridge, the licensing of university-generated technologies, which tend to be embry- 
onic in natiu-e, could not be achieved. 

In contrast, Bayh-Dole, by giving the universities the first option to retain title 
to inventions, permitted them to make informed decisions about patenting and to 
effectively manage the marketing of their patents to industry, all with the help of 
the inventor who best understood the technology. Moreover, the natural collabora- 
tion between the inventor and his university was enhanced through the incentive 
afforded by the university sharing licensing revenues with the inventor — a principle 
that is now a requirement under the law. 

Probably the single most important aspect of Bayh-Dole was to insure the cer- 
tainty of title in the universities to inventions made with government funds. This 
feature provided the major impetus to new and expanding university-industry rela- 
tionships. The certainty of title and uniform government-wide implementing regula- 
tions provide the stability which has been the key element to the success of Bayh- 
Dole over the past decade. 

Also of great importance to academe is that freedom to publish is not restricted 
by Bayh-Dole. While premature publishing will have a significant effect on patent- 
ing, not publishing will have a significant effect upon the credibility and strength 
of the university research work product. It is in the best interests of society that 
the patenting process and the freedom to publish the results of academic research 



35 

are recognized as important contributions and that one activity does not proscribe 
the other. The university, as the titleholder of inventions and patents on those in- 
ventions, is in the best position to ensure that neither patenting nor pubUshing will 
-be unnecessarily sacrificed one to the other. One should also keep in mind that 
under the disclosure inducement theory, which is the basic principle underlying our 
patent system, patenting ensures publication. 

Benefits to society 

The Bayh-Dole Act has been successfiil because it not only benefits universities, 
but industry, especially small business, the government and the public. 

University inventions usually stem from basic research and are, therefore, embry- 
onic in nature and generally not product oriented. They require an industrial part- 
ner to secure the necessary development to bring them to the marketplace. The 
Bayh-Dole Act, which allows exclusive as well as non-exclusive licensing, provides 
the range of modalities needed by industry for commercialization purposes. Exclu- 
sive licenses provide the security industry needs in order to invest risk capital for 
further development of promising intellectual property. 

In a 1989 survey, which included 76 major American firms in seven manufactur- 
ing industries, executives stated that a substantial portion of new products and 
processes introduced between 1975 and 1985 depended upon academic research and 
development. They explained that these products either could not have been devel- 
oped (without substantial delay) in the absence of recent academic research or were 
developed with very substantial aid from recent academic research. (NSF: Science 
and Engineering Indicators- 1989.) This is testimony to the ongoing cooperation be- 
tween universities and industry, which is vital to U.S. international competitiveness 
and which government poUcy should continue to nurture. 

The drug industry showed the greatest dependence on academic research with 44 
percent of its new products and 37 percent of its processes depending upon such re- 
search. The information processing industry was also found to rely heavily on aca- 
demic research with 28 percent of its products and 27 percent of its processes hav- 
ing a dependency on recent academic research. The metals industry also showed a 
high degree of dependence on recent academic research with 22 percent of its prod- 
ucts and 21 percent of its processes being so dependent. (NSF: Science and Engi- 
neering Indicators- 1989.) 

Collaboration between universities and small business has increased as a result 
of the Bayh-Dole legislation. In testimony before the House Small Business Sub- 
committee in June 1993, NIH Director Bernadine Healy presented preliminary data 
from a survey of one hundred federally funded U.S. research universities. Of the ap- 
proximately 375 research support agreements reviewed by NIH, 44 percent were 
with small business. A different set of data confirms the same development trend: 
a 1992 GAO study found that of 197 exclusive licenses granted during 1989-90 for 
technologies developed in whole or in part with NIH or NSF funding, 146 or 74 per- 
cent were granted to small U.S. business. That development trend is exceedingly im- 
portant for the country in that it is well recognized that the small business sector 
is where the greatest job growth occurs. That further translates into a better pos- 
ture for the United States in a competitive global economy. 

I, personally, believe that one of the best immediate measures of the impact of 
PL 96-517 is the growth of membership in AUTM and its predecessor organization 
SUPA (The Society of University Patent Administrators). From less than 100 in 
1976, membership has grown to over 1,100 today. However, the numbers alone, al- 
though strong evidence of the increasing interest and involvement in the technology 
transfer function, do not tell the whole story. In its early years, SUPA annual meet- 
ings were considered highly successful if attended by 75-100 people. Today we look 
toward attendance in excess of 600. Also, as the opportunities for technology trans- 
fer in the university sector evolved under the umbrella of PL 96-517, the length, 
diversity and sophistication of the programs increased. Today, it is difficult to ac- 
commodate all the varied interests and positions on the learning curve of those at- 
tending the meetings. j i-> u 
The government investment in university research also flourished under Bayh- 
Dole when viewed in terms of inventions generated which could be licensed to in- 
dustry. The surge in patent applications and patents issued illustrates a dramatic 
success story. The General Accounting Office reported in May 1992 on the perform- 
ance of 35 major research universities. Out of 197 exclusive licenses mentioned 
aijove, more than 175 were for technologies developed with federal (NIH) funding. 
The 1,155 patents granted to U.S. universities in 1990 accounted for 2.4 percent of 
all U.S. origin patents. This figure compares to 1 percent in 1980. NSF reports that 
in 1970, one in eight university patents originated from a biomedical or health relat- 
ed invention. That percentage rose to one in four at the end of the 1980's. Between 



36 

1980 and 1990, applications for patents on NIH-supported research increased by 
nearly 300 percent over the previous decade. 

In 1993, the total number of patents issued to universities numbered 1,670 and 
when hospitals and non-profit organizations which qualify for treatment under 
Bayh-Dole are added, the total number of patents issued becomes 2,024. It is also 
worthy to note that the patents were issued to 134 separate universities and 29 sep- 
arate hospitals and non-profit organizations — a grand total of 163 separate entities. 
In contrast, in the period from 1969-1975 only 64 of the top 100 research univer- 
sities received any patents and for the period from 1986-1990, that number had 
risen to 89. These figures are indeed strong evidence of the effect of Bayh-Dole in 
expanding the patent base for technology transfer. 

The real measure of technology transfer is not, of course, the number of patents 
which the university sector obtains or holds, but the amount of the technology rep- 
resented by those patents which has been transferred for development for the mar- 
ketplace. A recent survey was conducted by AUTM in an effort to provide evidence 
that university efforts are indeed responsive to the principles of Bayh-Dole and 
achieving the goals it envisioned. The institutions surveyed were requested to pro- 
vide the following information: 

1) Up to five licensable discoveries or inventions per respondent that are on the 
market today and generating sales. 

2) The number of start-up companies estabhshed (since 1980) that were depend- 
ent upon licensing the institution's technology for initiation even if the start- 
ups did not currently have products on the market. 

3) Licensing activities as to small and large business. 

The response obtained from the 44 institutions which did participate reported: 

• 178 products on the mairket which have been licensed to 439 entities. 

• Of the licenses granted, 312 are nonexclusive and 127 are exclusive. 

• Whether non-exclusive or exclusive about 60 percent have been with small busi- 
ness and the remaining percentage with large business. 

• The formation of a total of 338 start-ups (since 1980) that were dependent upon 
the licensing of the institution's technology for initiation (36 respondents). 

• Of the 178 products reported in the survey, 35 new companies were created in 
support of the inventions and discoveries. 

The cited data which has been presented is, without question, significant when 
viewed from an economic perspective. What should not be overlooked, however, is 
the inestimable value of products arising from university inventions which have or 
exhibit the capability of saving lives or of improving the Hves, safety and health of 
the citizens of the United States and around the world. 

FEDERAL TECHNOLOGY TRANSFER ACT OF 1986 

Often forgotten is the fact that Bayh-Dole is the first piece of legislation that ex- 
pUcitly gave the government the right to own patents. Prior to Bayh-Dole, the right 
in the government to own patents was an implied right only — a necessary adjunct 
to permit various government agencies to carry out their respective missions. 

Also, Bayh-Dole provided that in situations where a Federal agency employee was 
a co-inventor of a given invention with a university scientist, the government could 
assign its rights in and to the invention to the university subject to the terms and 
provisions of Bayh-Dole. 

Bayh-Dole must also be given credit for focusing congressional interest on mtellec- 
tual property-oriented legislation. With that focus established, the next ten years 
(after 1980) saw many pieces of such legislation introduced. Some have become law, 
most have not. One piece of legislation which could be considered to have been al- 
most directly spawned because of or as the result of PL 96-517 is the Federal Tech- 
nology Transfer Act of 1986 (FTTA). That act was introduced as an amendment to 
the Stevenson-Wydler Act of 1980 which act had been intended to proniote the utiU- 
zation of technology generated in government laboratories, but was singularly un- 
successful in accomplishing that goal. 

The FTTA was largely a response to the increasingly tough international competi- 
tion facing the United States and the prevalent complaint that "the U.S. wins Nobel 
Prizes while other countries walk off with the market". The designers of the FTTA 
built the act under certain fundamental principles: 

1) The Federal Government will continue to underwrite the cost of much impor- 
tant basic research in scientifically promising areas that takes place in the 
United States. 



37 

2) Transferring this research from the laboratory to the marketplace is primarily 
the job of the private sector with which the Federal Government should not 

compete. i ^u- 

3) The Federal Government can encourage the private sector to undertake this 
by judicious reliance on market oriented incentives and protection of propri- 
etary interests. 

The principles enumerated were first tested by PL 96-517 and the FTTA re- 
sponded to the lessons learned from that law, perhaps the most important of which 
was its success in promoting university-industry cooperation. 

The FTTA is, clearly, a direct highly beneficial legacy of PL 96-517. 

IN CONCLUSION 

It must be remembered that the Bayh-Dole Act (PL 96-517) as well as its imple- 
menting regulations were crafted, not in a vacuum, but as the result of experience 
gained under the Institutional Patent Agreements (IPA's) in the period froni 1968 
onward, the date upon which the then Department of Health, Education and Wel- 
fare granted its first IPA, and from 1973 onward under the first IPA granted by 
the National Science Foundation. In effect, it means that the principles of Bayh- 
Dole have been working and working well since long before the effective date of the 

Act itSGli 

Concerns were expressed in 1980, before Bayh-Dole was passed, and are being ex- 
pressed and evaluated again today. Will research agreements stifle the free ex- 
change of knowledge, promote secrecy and distort academic priorities to conform 
with commercial aims? There was also speculation in 1980 that companies might 
exploit taxpayer funded research without providing an adequate return to the pub- 
lic In her testimony before Congress in 1993, Dr. Healy put these concerns to rest. 
She said: "Fortunately there is little or no evidence that these adverse effects have 
materialized. In fact, the risks have been well worth taking: Highly productive um- 
versity industry relationships have blossomed since the passage of the Bayh-Dole 
Act. These relationships have yielded new products, created high technology jobs 
and spawned a robust U.S. biotechnology industry". 

Small business is frequently the test bed for embryonic umversity technologies 
and has benefited to a very large extent. The government is comforted in knowing 
that taxpayer dollars lead to development of products that advance the health and 
safety of its citizens. Industry can rely on a source of data, and a pipeline of man- 
power that feeds its production processes. All sectors of society enjoy both the pro- 
tection and benefits provided by the Bayh-Dole Act. . 

Bayh-Dole has been successful in facilitating the transfer of federally funded in- 
ventions from the umversity laboratory to the marketplace because it is based on 
fair and equitable principles which encourages university participation, balances the 
interests of both the academic and commercial sectors and fosters the university- 
industry partnerships that are essential to strengthening U.S. competitiveness. 

The opportunity to present these experiences and views is sincerely appreciated. 



38 



UNIVERSITY 

TECHNOLOGY 

TRANSFER 



Questions and Answers 



COGR 

COUNCIL ON 

GOVERNMENTAL 

RELATIONS 



NOVEMBER 30, 1993 



39 
Council on Governmental Relations 



This document, which poses and answers rwenty questions, is 
intended to inform the public about technology transfer at U.S. 
research universities. The Q&cA has a compendium piece, en- 
titled "The Bayh-Dole Act — A Guide to the Law and Imple- 
menting Regulations". Although each document fulfills its own 
purpose, they complement each other. 'VC'Tien taken together 
they present a primer on the subject. 

The Council on Governmental Relations is an organization 
which includes among its members over 135 research intensive 
universities. This booklet docs not claim to be a manual of uni- 
versity technology transfer and licensing activities. Rather, it 
illustrates the philosophy and processes currently practiced in 
the university community. 

In preparing the material, the COGR Subcommittee on Tech- 
nology Transfer drew on the assistance of many COGR ijniver- 
sities. Their help is gratefully acknowledged. Reproduction for 
purposes of sale or profit is prohibited without the written con- 
sent of the Council on Governmental Relations. Otherwise, re- 
production is encouraged. 



40 



1. What is the Bayh-Dole Act, what prompted it, and 
why is it important to university technology trans- 
fer? 

Enactment of the Bayh-Dole Act (P.L. 96-517), the 
"Patent and Trademark Act Amendments of 1980" on 
December 12, 1980 created a uniform patent policy 
among the many federal agencies that fund research. 
Bayh-Dole enables small businesses and nonprofit orga- 
nizations, including universities, to retain title to materi- 
als and products they invent under federal funding. 
Amendments to the Act also created uniform licensing 
guidelines and expanded the law's purview to include all 
federally-funded contractors. (P.L.98-620) 

Critical pressures prompted the Bayh-Dole Act in 1980. 
Congress perceived the need for reliable technology trans- 
fer mechanisms and for a uniform set of federal rules to 
make the process work. One major impetus for the bill was 
the lack of a capability on the part of the federal govern- 
ment to transfer technologies for which it had assumed 
ownership. Hundreds of valuable patents were sitting un- 
used on the shelf because the Government, which spon- 
sored the research that led to the discovery, lacked the 
resources and links with industry needed for development 
and marketing of the inventions. Yet the government was 
unwilling to grant licenses to the private sector The few 
federal agencies that could grant patent title to universities, 
were overregulated with conflicting licensing and patent- 
ing policies. Technology transfer under those conditions 
was operationally prohibitive for universities and made 
them reluctant to enter the tcchnolosiv .ircn;i. 



41 



Since U.S. industry also was not inclined to brave govern- 
ment bureaucracy to license patents from universities or 
from the government, limited technology transfer was ac- 
complished by the publishing of research results, training 
of students for the workforce and some extension programs 
established by the land-grant universities. The benefit to 
U.S. industry of such an unstructured process is undocu- 
mented and highly speculative. 

The stability provided by the Act, its amendments and clear 
implementing regulations has spurred universities to be- 
come involved in transfer of technology from their labora- 
tories to the marketplace. The ability to retain title to and 
license their inventions has been a healthy incentive for uni- 
versities. Such incentive is needed, since participation in 
patent and licensing activities is time consuming for fac- 
ulty, and must be done in addition to research and teach- 
ing priorities. The number of U.S. patents issued to 
universities has increased sharply since Bayh Dole was 
passed. 



42 



2. How has the Act influenced university technology 
transfer over the last decade and what are the re- 
sults? 

Bayh-Dole gave universities concrol of their inventions. 
By placing few restrictions on the universities' Ucens- 
ing activities, Congress left the success or failure of patent 
licensing up to the institutions themselves. That foresight 
has been rewarded by skillful and committed" university 
professionals who have shown that licensing embryonic in- 
ventions can be successful. The keys are inventors moti- 
vated to engage in the process and a licensing relationship 
built on partnerships with industry. T-hiS model is now 
emulated by the federal laboratories. 

The success of Bayh-Dole in expediting the commercial- 
ization of federally funded university patents is reflected in 
the statistics. Prior to 1981, fewer than 250 patents were 
issued to universities per year. Slighdy over a decade later, 
almost 1,600 were issued each year. Of those, nearly 80% 
stemmed from federally funded research. In addition, the 
number of universities participating in the patenting effort 
has increased to the point that in 1 992, 200 universities had 
at least one patent issued annually.' 

Core technologies, likely to spark whole new industries, 
often result from university patents. This potential makes 
the contributions of the university sector to the national 
patent pool so significant. Examples range from the bio- 
technology to the laser industry. Stanford's Cohen-Boyer 
patent on basic gene splicing tools is at the heart of the 
entire biotechnology industry The Axel patents, from Co- 
lumbia University, provided a new process for inserting 
genes into mammalian cells to make protein. A host ofncw 
pharmaceutical products resulted from this invention. 



43 

The Atomic Force Microscope, invented at the University 
of California, Santa Barbara, is the most advanced atomic 
microscope in existence.The invention has not only signifi- 
cantly improved our ability to study the structure of mol- 
ecules important in biology and medicine; it also helps 
scientists comprehend the subtle details of physiological 
and chemical processes as they occur in real time. 

The field of Magnetic Resonance Imaging, as wc know it 
today, has its roots in research at the University of Califor- 
nia, San Francisco; This University-developed technology 
was first disclosed in the mid 1970s. Later university work 
in this area and produaive partnerships with industry have 
led to continual advancement in the field. Today, Magnetic 
Resonance Imaging is a staple in modern medical care. 

University gross licensing revenues of approximately 
$200M in 1991 and $250M in 1992,^ are a striking indi- 
cator of how many university-owned patents have become 
marketplace products or are in the process of development 
by industrial companies. Bayh-Dole has enabled laboratory 
advances to become a significant faaor in U.S. industrial 
growth. 

' AUTM Survey, compiled annually by Ms. KathleenTcrry, State 
University of New York at Buffalo 

^ AUTM Uccnsing Survey, 1993. 



44 



3. How many research universities have technology 
transfer offices and. what do they do? 

It is not known exactly how many universities are engaged 
in technology transfer activities. One indicator is that 
over 230 U.S. universities and nonprofit research institu- 
tions are represented in the Association of University Tech- 
nology Managers (AUTM). Among those universities that 
are active, one can observe a variety of structures and sizes. 
More significant than the structure of those offices, how- 
ever, is their mission. 

The mission of universit}' technology tj-ansfer/licensing 
offices is to transfer research results to commercial appli- 
cation for public use and benefit. The office seeks and 
receives reports of inventions from investigators; reports the 
inventions to sponsors; decides whether to elect title for in- 
ventions developed with external funding; files patent ap- 
plications; markets those patents to industry, and negotiates 
and administers license agreements. The technology trans- 
fer office is also responsible for oversight of patent prosecu- 
tion, recording of income and disbursements, and yearly 
reports to the government. 

The major effort of the office is to find companies which 
have the capability, interest and resources to develop em- 
bryonic technologies into useful products. Once a match 
is found, a license agreement is negotiated to ensure that 
the company will be diligent in its efforts and will provide 
a fair financial return to the university — one that reflects a 
portion of the university's contribution to the return the 
company receives. 

Technology transfer operations are generally also involved 
in negotiating material transfer agreements. Under such 
agreements, investigators share research materials (cells, 
cells lines, reagents, or other organisms) with colleagues m 
other universities or industry. Technology transfer experts 
also review the intellectual property terms in sponsored 
research agreements with industry (in some cases actually 
negotiating these agreements in conjunction with the 
university's Contracts and Grants office). Importantly, the 
professionals in. the office are also a resource to the campus 
on a wide variety of intellectual property matters. 



45 



4. How does university technology transfer work and 
what do universities license? 

The major steps in technology transfer are: disclosure 
of inventions; record keeping and management; 
evaluation and marketing; patent prosecution; negotia- 
tion and drafting of license agreements; and management 
of active licenses. University technology transfer is mainly 
a system of disclosure, patenting, licensing and enforce- 
ment of patents and licenses. 

The disclosure document contains information about the 
invention, the inventors, the funding sources, anticipated 
bars to patenting (such as publications), and other data 
(such as likely candidates for licensing). The disclosure is 
reviewed by the licensing staff or a university committee, 
who make a preliminary decision about ownership and the 
invention's potential commercial value and patentability. 
The technology transfer office takes action to insure that 
the newly disclosed intellectual property will be handled 
in compliance with federal and university policies. 

The next step is to seek an opinion on the patentability of 
the invention or to file a patent outright. The technology 
transfer office then markets the invention to industry. A 
nonconfidential summary is sent to companies that are 
likely to be interested. If a company expresses interest, it 
will be asked to sign a secrecy agreement (to protect patent 
rights) prior to receiving confidential information from the 
universit)'. If the company continues to be interested after 
reviewing the confidential information, an agreement with 
the company is negotiated. This can be a letter of intent; 
an option; or a license. 

In conjunction with any one of these options, a research 
agreement may be negotiated to continue work on the in- 
vention at the university. Most universiry inventions arc 
embryonic and require further research and development 
before they are ready for the market place. Thus, there is a 
high level of risk for the licensee — a fact that is taken into 
account in the licensing negotiation. 

Technology transfer offices have many different "custom- 
ers" with sometimes conflicting objectives. For instance, 
customers may consist of 

a) the faculty — inventors, who often have expectations of 
research opportunities, income, public utilization and 
fame; 



46 

b) the private sector, with expectations of securing com- 
mercially viable technology at a fair price; 

c) the university administration, w^hich expects the office 
to be self-supporting and wants to prevent conflicts of 
interest; 

d) the governing board, which needs assurance that the 
university's name and reputation are protected in its 
industrial relationships; 

e) the taxpayers, with expectations that the office will 
manage state and federal resources in an effective and 
nondiscriminatory manner; and 

the sponsoring agency which insists on compliance with 
provisions of the Bayh-Dole Act. 

In addition, the technology transfer office has the critical 
task of insuring that the missions of the university — edu- 
cation, research and service — are not compromised by the 
business interest emerging from the technology licensing 
function. 



47 



5. How is the licensing value (fees/royalties) of tech- 
nologies determined, and how is that value pro- 
tected? 

License fees and royalties are determined by arm's length 
negotiations between licensor and licensee. Fees and 
royalty rates are rarely large because most of the technol- 
ogy is in early stages and risky, thus requiring considerable 
investment to transform it into a marketable product. 
There are, however, a few technologies that have clear com- 
mercial applications and have large potential markets. In 
such cases, the university can negotiate larger fees and 
higher royalty rates. The deciding factors are: the type of 
technology, its stage of development, the size of the poten- 
tial market, the profit margin for the anticipated product, 
the amount of perceived risk, the strength of the patents, 
and the projected cost of bringing a product to market. 

To place this in perspective, license fees rarely reach into 
the six figures for a single patent, but more often range from 
a few thousand to a few tens of thousands of dollars. Roy- 
alty rates range from less than one percent (for some pro- 
cess technologies) to perhaps eight percent (for a patented 
compound with a significant market). The majority of 
royalty rates are in the 3% to 6% range, based on net sales. 

The marketing process itself sets the value of the technol- 
ogy — how interested are the prospective licensees. Other 
factors that play a role are the estimated dollar value of the 
research which led to the discovery; the projected cost of 
development needed to complete the product; the scope of 
the license (exclusive vs. nonexclusive; US vs. worldwide; 
narrow vs. multiple fields of use, etc.) and royalty rates for 
similar products. 



48 

beyondsuchgeneralconsiderations, many universities seek 
to accomplish several basic goals in development of the 
package of considerations: a) the licensee should fund the 
patent application either through an up-front fee for reim- 
bursement of costs already incurred by the university or 

through a requirement to reimbursement of ongoing ex- 
penses of the university; b) the license agreement should 
include ongoing considerations to the university (a royalty); 
c) required minimum annual royalties after a specified pe- 
riod of time regardless of actual sales; and d) performance 
milestones to assure that the university's technology enters 
the market. This "formula" hopefully assures that the tech- 
nology is developed to completion and put in the stream of 
commerce, assures a fair return to the university, and as- 
sures that the technology is returned to the university 
should the licensee not pay the minimums or achieve the 
specified performance milestones. 



J 



49 



6. What factors influence university decisions to li- 
cense patents either exclusively or non-exciusively? 

University decisions on whether to license a patent only 
to one company or to a number of companies are 
based on several factors. Howevei, universities are gener- 
ally most influenced by two major determinants: (1) what 
kind of licensing is most likely to lead to rapid commer- 
cialization; and (2) what kind of licensing is in the public 
interest. 

Patents which are broad in scope and c^tn be used in mul- 
tiple industries, or patents that are so basic that they form 
the building blocks for new technologies are most likely to 
be licensed non-exclusively, or by fields of use. An exclu- 
sive, "f'cld-of-use" license is a way to protect a market for 
a company while enabling the university to identify more 
than one licensee to assure public utilization of the tech- 
nology in all markets. 

Stanford University's Cohen-Boyer patent is an example of 
a basic patent that was licensed to all companies needing it. 
Non-exclusive licensing is preferred by universities when 
the technology can be used to fester product development 
in many fields of use. For example, if a technology will be 
of greatest benefit to the public if it becomes an industry 
standard, the university will make it readily accessible to all 
interested parties. 

Universities most frequently will grant exclusive licenses to 
patents that require significant private investment to reach 
the n-.arketplacc or are so embryonic ih.it exclusivity is 
neccss.ir\' (o iiulucc liie iiux-simciu needed lo (.IcicriiiiiH' 
lUiiiU'. !-rcc]iiciul)', these are new ijriit;s lequirin", iinic-in- 
tensr.c and capital-intensive dcvclopnieni oi ihey are tech- 
nologies that have only a tenuous link between the 
workbench and production. As such, they requite a com- 
pany willing to dedicate financial backing and the creativ 
itv of its own scientists on a long-range basis. 

.^t the final call, the decision to license on an exclusive or 
ncn-cxclusive basis is inevitably dtiven by market interest 
Not only docs ilie interest relate to 'he value of the mvcn 
tion, but also to the investment required to develop new 
products and the risk as.sociated with that technology. 



50 



7. To whom do universities license and what role does 
the start-up company play in technology transfer? 

Universities license technology to a broad spectrum of 
organizations and individuals, ranging from the large 
for-profit corporation to a small non-profit research insti- 
tute. For example, a license may be given to a multi-national 
pharmaceutical company for a new application of a known 
drug because that company may hold the patent on the 
compound. A non-exclusive license may be granted to a 
number of computer hardware and software firms to in- 
crementally improve product lines. A royalty-free license 
may be granted to another non-profit research institute to 
enable a researcher to practice the invention for research 
purposes. Included in these examples must also be a license 
to a early stage firm whose founding purpose was to com- 
mercialize the technology. While these kinds of licenses are 
probably the riskiest in terms of eventual commercializa- 
tion and subsequent payoff, those licensee companies are 
sometimes the most efi^ective at transferring the technol- 
ogy for the public good. 

Universities search for the licensee most capable of com- 
mercializing the technology. Examples of criteria used in 
identifying the licensee are: financial and technological 
resources; "fit" within the company business plans; previ- 
ous experience, and marketing capabilities. Desire of the 
licensee to commercialize the technolog)' and the relation- 
ship of the inventor to the licensee are also miportant. Com- 
mercialization of technology is not dependent only on 
intellectual property rights such as patenis, bm also on the 
ideas and know-how of the inventor. Ihcrctorc, the ability 
of the inventor to relate to the licensee is often .1 key factor 
in a license transaction. 

When an entrepreneurial inventor is involved, the licensee 
may be a early stage company formed around the technol- 
ogy. These entrepreneurial ventures may bring with them 
a myriad of potential conflict of interest issues which must 
be resolved before a license is consummated. Nevertheless, 
they often are the most desirable because they have several 
of the key licensing components: desire by the licensee to 
make the product/technology a success, and involvement 
by the inventor in assuring success. One other factor in li- 
censing to early stage companies is that these companies 
make that technology their business, whereas in established 
companies the technology must compete for resources with 
other development projects. 



51 



8. Why is it not feasible to select licensees through a 
competitive bidding process? 

Most university-developed technology is "sold" 
rather than "bought". This means that considerable 
investment is required to present, persuade, and tailor spe- 
cific arrangements to the needs of the licensee. Usually, the 
task is to find at least one capable and interested company, 
rather than choosing among several candidates. It is gener- 
ally impossible to bring the interest of several prospects to 
a head at the same time, as would be required for a mean- 
ingful competitive bidding process. Also, tailoring to spe- 
cial industry needs makes the competitive bidding useless. 
Yet, such tailoring is especially necessary in the case of small 
business firms to which universities are required to give 
preference for technology developed with federal funding. 

Additionally, many universities are unable to afford the full 
expense of the patent application process. They therefore 
seek prospective licensees to cover such patenting expenses 
as part of a license agreement. The confidentiality required 
to prevent loss of rights in pre-filing negotiations makes 
competitive bidding difficult, especially when loss of patent 
rights through publication is imminent. 

Normally universities contact several prospective licensees 
and pursue the most promising ones. Should there be more 
than one, universities will decide in favor of the one best 
able and diligent to develop the technolog)', not necessar- 
ily the one who will pay the most.NX^ere time and circimi- 
stances permit, universities may showcase technology 
available for licensing, through publications, databases, and 
technology shows. More satisfactory results probably would 
not be achieved through a formal competitive bidding pro- 
cess. Because of the extra time and effort required in bid- 
ding, together with the inevitable reduction in flexibility, 
the result almost certainly would be fewer licenses and thus 
fewer university technologies being productively commer- 
cialized. 



52 



9. Why do universities sometimes license to foreign 
companies, and to what extent have federally-as- 
sisted technologies been licensed to foreign com- 
panies on an exclusive basis? 

When universities seek potential licensees, they begin 
close to home — with companies within the same 
state or region. This makes sense because the company of- 
ten needs to have access to the inventor as a consultant to 
assist in the development process. Such interaction is easier 
if distant travel is not required. Universities consider li- 
censes to foreign companies in those instances where all 
attempts to identify a domestic licensee 4iave failed. If a 
thorough investigation of all possible licensees in the United 
States results in failure, should the university seek foreign 
licensees or close the file? There are many foreign compa- 
nies which are leaders in their fields and thus, also, are 
potential licensees. In some cases, such as in equipment for 
the paper drying industry, the only prospective licensees 
may be foreign companies. Many of what appear to be local 
and U.S. based companies are, in fact, "foreign"; they may 
have been purchased by a foreign corporation (as is the case 
with Genentech) or they may be a U.S. based subsidiary 
(as is the case with Miles, Inc.). The fact is that many com- 
panies are multi-national and have U.S. offices and facto- 
ries. 

The choice of licensee is best made on the basis of whether 
a company has the capabilit)' and resources to develop the 
technology and to bring it to market effectively. Since uni- 
versity technology is not a fully developed product, it is less 
.T question ofchoosing among various qualified companies 
than findinganycompany willing and able to take a license. 
1 hus if a foreign company makes a reasonable proposal and 
IS capable of developing and marketing products based on 
the invention, the univcrsit}' will generally grant that com- 
pany a license. 



53 



Nevertheless, universities should be extremely cautious in 
considering foreign licensees, especially if the research was 
funded by the U.S. government. For those inventions, all 
exclusive licenses require the licensee, including foreign 
companies, to manufacture products substantially in the 
U.S. 

The recent GAO survey of thirty-five top NIH and NSF 
grantees showed that during 1 989 and 1 990, only eighteen 
of the one hundred ninety-seven exclusive licenses for 
NIH/NSF-Rinded inventions went to foreign companies 
(less than 10%). An additional eleven were granted to U.S. 
subsidiaries of foreign corporations.' 

' "University Research-Controlling Inappropriate Access to Fed- 
erally Funded Research Results", May 1992. 



1 



1 0. what is the relationship between patents and pub- 
lications? 

n order to obtain a patent, the inventor must fully dis- 
close his/her invention.Thus, in some ways the act of pat- 
enting insures publication. At the same time, publication 
of the derails of an invention prior to filing a patent appli- 
cation, can result in the loss of patent rights in most coun- 
tries. The U.S. is an exception since it permits an inventor 
to obtain a patent if a patent application is filed within one 
year of the date of publication which first disclosed the 
invention. 

Some scientists are concerned that the desire to obtain pro- 
tection may cause publication to be delayed for long peri- 
ods, slowing the exchange of scientific information and 
thus scientific progress. While this may be true in industry, 
it does not appear to occur in academia where publication 
delays for patent purposes are rare. When they do occur, it 
is usually for less than three months. In fact, if a faculty 
member starts the patent filing process at the same time as 
submitting a manuscript for publication, it is likely that the 
patent application will be filed (in three months) long be- 
fore the manuscript is published (in six months). 

For university scientists, the right of unfettered publication 
of data — in journals, other written media, through oral pre- 
sentation at public meetings — is a basic principle of aca- 
demic life. Patents protect this form of public discourse in 
science. It is not a matter of having to chose between 
patents and publications; both are feasible and frequently 
desirable. But if there is a choice, it is the faculty who makes 
the call. 



54 



11. Why is it not desirable to dedicate all federally- 
assisted inventions to the public via publication, 
rather than patenting some of them? 

An argument has been made that inventions resulting 
from federally funded research should be dedicated to 
the public, by publishing the details of the invention in lit- 
erature available to the public. The thought is that since 
taxpayers paid for the invention they should have free ac- 
cess to it. In reality, taxpayers could only reap benefit of the 
invention if they had large financial resources, sophisticated 
technical skills and the personal interest in practicing the 
invention. Further, this scenario would require inventions 
that are ready to go to production stage. In today's com- 
plex technological environment, federally funded research 
is rarely ready to go into production when universities are 
ready to license it. Such development is often time consum- 
ing and costly. 

Taxpayers do benefit from inventions by having access to a 
broad range of products developed by a predominantly 
competitive marketplace. New drugs are a prime example. 
If the invention has been dedicated to the public through 
publication, no commercial firm would devote extensive 
resources to developing the first commercial application, 
knowing that any oftheir competitors can step in and reap 
the profits of commercial exploitation once the invention 
has been proven. Patents, and the seventeen year exclusive 
position they provide to the inventor, or to the inventor's 
designee, are necessary for successful commercial develop- 
ment of inventions. 



55 



12. What ptJtential financial conflicts of interest could 
arise at universities in the technology transfer pro- 
cess, and what steps have universities taken to deal 
with them? 

Universities are concerned about four primary issues in 
a conflict of interest between the academic research- 
ers' duties to the university and their involvement with 
industry in technology transfer. 

1. Conflicts of time and commitment — an over-involve- 
ment of the investigator with the company to the detriment 
of teaching and university research obligations. Most uni- 
versities have regulations regarding the faculty member's 
time obligations to the university. For example, some uni- 
versities state that the "academic year salary" covers 80% of 
the faculty member's time during the nine months of the 
academic year. Faculty are free to consult "up to 20% of 
the time" (usually understood to be one day per week) 
during the academic year. Payment for the "summer 
months" is often under a separate, negotiated arrangement. 
The issue is further controlled by regular reporting of the 
investigator's consulting and other outside commitments. 

2. Misuse of university resources on the company's be- 
half — this includes university facilities, equipment, sup- 
plies and involvement of graduate students and other paid 
researchers. University policies should make it clear that 
work done at the university must be publishable in the open 
literature and that any intellectual property such as data, 
patents and software, developed with university resources 
belongs to the university. In addition, periodic reports to 
research sponsors assure that grant money is used for legiti- 
mate research ends. Periodic performance review by aca- 
demic administration and an "appeal path" for employees 
further controls the process. 

3. Confusion in ownership of intellectual propcrt}' — The 
question: "Who owns Professor X's patent?" could become 
a common source of dispute, unless there are clear univer- 
sity policies and definitions within research agreements of 
the sponsor's rights. University policies commonly state that 
the university owns all patents and software developed us- 
ing university facilities or developed under a sponsored 
research agreement. Industrial sponsors are commonly 



56 

granted first options to license patents arising from the 
research, and the federal government is granted a 
nonexclusive license to patents from federally funded re- 
search. 

4. There may be potential or perceived conflict of inter- 
est where an inventor holds an equity position in a com- 
pany, which the university has licensed to market and 
distribute the invention. Most universities believe that 
bringing such financial holdings into the sunlight, through 
public disclosure, is preferable to a hard and fast rule pro- 
hibiting the taking of equity altogether. 

Universities also understand that potential unethical con- 
duct may arise from an investigators financial interest in a 
company. Universities have separate rules in place to pre- 
vent, discover or sanction fraudulent activities. Scientific 
misconduct, however, is not to be equated or confused with 
conflicts of interest. 



57 



1 3. Why is there sometimes joint federal and industrial 
participation in university research projects? 

Increasingly, the federal government encourages the de- 
velopment of collaborative relationships between itself, 
industry, and academia. New partnerships are fostered 
through the Defense Reinvestment Act, programs at the 
National Institutes of Standards andTechnology, the Envi- 
ronmental Protection Agency and the Department of En- 
ergy. Collaborative relationships are expected to promote 
economic development, job creation, technology transfer 
and innovation. 

Federally funded projects can indeed benefit from the prac- 
tical industrial perspective. The research can be enhanced 
by industry's interest in the application of the research to 
solving practical problems and creating new or better prod- 
ucts. Industry scientists have substantial expertise in many 
federally funded research areas. Thus, collaboration be- 
tween research at the university and development at the 
company facilitates the transfer of new technologies to 
the commercial sector. The resulting leveraging of funds 
and expertise benefits all parties and the public. 

In certain programs, federal agencies require applicants to 
present a technology transfer plan as part of their funding 
proposal. In these cases, universities seek potential licens- 
ees while the research is in progress. Gaining company par- 
ticipation at that early stage increases the likelihood that 
the company will grasp the commercial potential of the 
research and will help move mventions to the marketplace. 

Universities increasingly try to foster ties ^^•nh industry. This 
can be a win-win situation: industry extends the scope of 
its R&D, and universir)' investigators extend their limited 
research dollars and gain access to the expertise of indus- 
trial scientists. Bringing industry interests into universir\' 
projects also contributes to placement of university' gradu- 
ates in industrial settings where their education and train- 
ing is effectively used. 

Some state governments are also promoting industry-uni- 
versity ties. For instance, the Texas Higher Education Co- 
ordinating Board makes biannual awards of approximately 
$60 million to researchers at state universities in the Ad- 
vanced Technology Program. Receipt of state funds under 
this program is contingent upon industry participation in 
the research project. 



58 



14. Do universities apply different policies and proce- 
dures to inventions assisted by industry funds than 
to those assisted by federal funds? 

Universities generally apply the same policies and pro- 
cedures to all inventions made at the institution, 
whether they result from federal or industrial funding. Of 
course, the university must comply v^rith certain govern- 
ment reporting and licensing requirements of the Bayh- 
Dole Act for inventions resulting from federally funded 
research. Nonetheless, university policies emphasize the 
university's responsibility to manage /z// its inventions for 
the public benefit. 

When an invention results from industrially funded re- 
search, the sponsoring company is often granted the first 
opportunity to obtain a license to commercialize the inven- 
tion. If joint industrial and federal funding is involved, the 
company's rights are subject to the institution's obligations 
to the federal government. Whether or not federal funds 
are involved, the university insists on license terms that 
require the company to be diligent in developing the in- 
vention. If the company does not comply, the university 
generally reserves the right to terminate the license or to 
grant liceivses to other companies. In this way, a company 
can be prevented from "shelving" an invention that might 
replace or compete with one of its existing products. 



59 



15. When is it appropriate for license rights to future 
federally assisted inventions to be committed to an 
industrial sponsor? 

When both federal and industrial funding support a 
research program, it is appropriate to grant an in- 
dustrial sponsor the right to receive licenses to subsequent 
inventions. The regulations implementing the Bayh-Dole 
Act specifically recognize this possibility. It is also possible 
for r^vo separate research projects to contribute to a single 
invention. If one project is sponsored by industry and one 
by the federal government, the industrial sponsor can be 
given rights to the invention. 

It is, however, considered inappropriate to grant an indus- 
trial sponsor the right to exclusive licenses to future feder- 
ally assisted inventions which result from research that the 
company does not fund. 

Perhaps the most fundamental boundary is that univer- 
sities should not gram to a single industrial sponsor the 
rights to federally assisted inventions from the entire in- 
stitution or major units such as departments, centers and 
laboratories. The granting of rights must be specific to the 
scope of work funded. 

University action in the management of inventions is 
guided in part by their mission: instruction, research, and 
public service. It is within this mission that universities 
undertake federally assisted research. The administration 
of invention rights arising in this research is further 
bounded by the implementing regulations of the Bayh- 
Dole Act. For example, the Act specifies that manufacture 
of products based on the technology should be done sub- 
stantially in the United States. This is good public policy, 
but it also makes good business sense. Companies often 
express a concern about the government's march-in rights 
under the Act. These rights, again, are appropriate public 
policy and would likely be applied only when a company's 
pricing is abusive — a condition which the marketplace is 
more likely to correct first. 

It is within this framework of principles, institutional mis- 
sion and federal regulations that universities determine 
what rights to grant to industrial sponsors. 



60 



16. How much income is derived by universities from 
licensing federally assisted inventions, and how is 
that money used? 

The 1992 GAO survey of thirty-five top NIH and NSF 
grantees showed that for the two-year period 1 989 and 
1990, those universities received a total of $113M from 
licensing of which $82M was for licenses of NIH/NSF 
funded inventions. To place these figures in context, the 
invention income was less than 1% of the research sup- 
port provided to universities by NIH and NSF. 

The Association of University Technology Managers 
(AUTM) gathered 1991-1992 data from U.S. and Cana- 
dian institutions engaged in technology transfer. 98 U.S. 
universities provided gross figures on their royalty/ income. 
For 1992, royalties amounted to $172M. This figure needs 
to be adjusted for legal fees, amounting to $37M. In addi- 
tion, the survey does not translate into dollar terms the 
amount of staff time expended to manage the process. Such 
figures tend to be meaningless in the abstract, lacking the 
context of institutional, federal and industry funding which 
provided the basis for the invention disclosures. 

In reality, licensing income is small in comparison to the 
total university budget or even in comparison to the 
university's sponsored research budget. Even at the schools 
with the most licensing income those percentages rarely 
exceed 3-5%, and at most schools the percentage is less 
than 1-2%. 

How do universities use royalty income? 1 he answer is the 
same at all U.S. universities — income from licenses flows 
back into research or teaching. According to federal law, the 
universities must share licensing income from federally 
funded inventions with the inventors. The balance of in- 
come can be used to cover the costs of the tcchnolog)' trans- 
fer program and to support teaching and research at the 
university. While the specific percentages vary from insti- 
tution to institution, the typical royalty sharing policy pro- 
vides, after expenses, about Vs of net income to the inventor 
V3 to the inventor's department, and the university's gen- 
eral research fund receives the final '/3. 



61 



1 7. How do universities measure success in technology 
transfer? 

There are many ways to measure success in technology 
transfer, but since this is a new field, success indicators 
are not yet uniformly established. Various measures in- 
clude: the number of inventions disclosed; the number of 
patent applications filed, patents issued, and licenses con- 
summated; the amount of licensing income, and the num- 
ber of commercial products produced and sold. Some 
institutions track the number of industrial interactions and 
research projects funded as a direct result of marketing ini- 
tiatives. Others point to spin-off industries and related 
incubation facilities, which tend to grow next to highly 
innovative universities. Silicon Valley and Route 128 are 
well known examples. 

More intangible, but nonetheless significant indicators 
include: a university's capability to retain entrepreneurial 
faculty and attract outstanding graduate students; irs repu- 
tation for innovation; the enhancement of university re- 
search; and the promotion of the university's name. And 
the marketplace impact of university originated products 
and technology is unquestionably a major component of 
success. 

Marketplace products are recognized by the public as a 
tangible outgrowth of its support of basic research. An ex- 
ample of the impact of university technology transfer on 
the marketplace is found in the biotechnology industry. 
This entire industry — and ten thousands of new jobs it 
created — is based upon univcrsit)' research. The Cohcn- 
Boyer patent licensed by Stanford University is used hv .ill 
biotechnology companies. In addition, many of the.se com- 
panies were founded to develop universit)' inventions, 
whether related to specific genes, monoclonal antibodies 
or potential drugs. 



91-388 - 95 - 3 



62 



18. Why' do luiiversities retain title to inventions? 

J I niversirie.v ^lC liniquc environments. They are the r.u- 
\wV n.ubtive prosiuci of decades of social invcirment. 
Their land and pliysicit! plant may have been granted or 
gifted by state governments or individuals. The.r tremen- 
dous value to the public h exemplified by the fact th?.t they 
are rradinonall> tax-exempt. Their activities are supported 
by 3 mix ofsrate, federal and private investment. The pacc 
berv.eer» universities and the public demands accouiuabii- 
ic)' i'ii use of resour. OS which have been piovided at public 
expense, and imposes an obligation upon universities lo 
ensure that the public receives benefit for its investment. 
This \< one factor in some universities' reluctance to sell 
pateni title to industry. Othei factors also play a role: 

■ The value of the American research university is in the 
reservoir rif its scientific experience and the accomplish- 
ments of its faculty and students Ensuring continued 
use of u nique discoveries within the classroom and labo- 
ratory is indispensable to maintaining the qualirv ol the 
research university By maintaining control of their 
patents, universities allow both commercial use plus 
contributions to the universities' collective intellectual 
experience. 

■ Bv nature the u niversity is a dynamic environment with 
f;iculr/ and students freely interacting with one another. 
Cross- fer> iiization of ideas may result in multiple mveii- 
lions wi;l! obligations to different funding sources. Ry 
retMPingutleio patents, universities are in a position to 
equiiahly apportion the tight to use patents among ilv 
contributin" orua.iizations. 

a Til." link between techriolcg>' crei-.tor and produc dc- 
\ clone; i- rruriHl tor siiccessful conunciciaiization ! he 
"roduct dcv,->loper .noit often does nor have the knowl- 
edge to work with the basic inventions that result frotii 
university reseaich. By retaining patent title and iicens- 
inc those patents to industry, universities establish a 
partnering relationship that allows ongoing intcractioii 
between the source of the idea and those with the ex- 
pertise :o bring it to the marketplace 



63 



B'. refaiijing titLe to patents, universities can .equiie lic- 
ensees to make diligent efforts toward commercializing 
those patents. Patents not used must be surrendered to 
the university so that an alternative licensee may be 
round. Universities can ensure that new product oppor- 
tunities are not wasted by companies without the re- 
sources, resolve or capability to achieve commercializa- 
tion. 

Incentive to invent is as important lo the university 
scientist as it is to the industrial scientist. A technology 
transfer program structured around royalrv-bcaring li- 
censes, lather than patent title assignment, helps moti- 
vate university scientists to pursue break-through 
discoveries. 



19. Why are universities a vital link in the chain from 
creation of knowledge to development of products? 

The valuable results of research which provide advances 
in technology are usually the result of the curiosity of a 
researcher who is asking "Why is this so?" or "Where could 
that lead?" What makes universities unique is the fact that 
they provide a rich diversity bringing together multiple 
disciplines, with a broader focus than product-specific in- 
dustries. Most importantly, universities train and nurture 
the next generation of scientists and engineers which will 
carry with them to industr)' the ability to link creative 
knowledge with product development. The university pro- 
vides the environment — library, laboratory, resources, 
equally curious colleagues and students — to nurture the 
pursuit of knowledge. 

However, this knowledge often needs further work even 
to begin to determine its usefulness as a contribution to 
a product or service. Industry is reluctant to support re- 
search which is not directed toward immediate financial 
return. The university provides a proving ground on 
which to take next steps toward commercialization. 

The majority of university research is sponsored by govern- 
ment agencies and is not targeted to specific commercial 
markets or end products — it is, by definition, basic re- 
search. However, since it is the nature of research to iden- 
tify' and test new ideas, its results often lead to the expansion 
of scientific knowledge as well as to the development of new 
technologies and products which benefit the public. 



u 



64 



20. Why is it important to encourage university inven- 
tors to participate in the patenting process and how 
are they motivated? 

[ nivcrsicies make a considerable investment each time 
they decide to patent an invention. Their resources 
include the faculty inventor's time and eneig)-, and the 
ouday of dollars required by the patent applica'ion process. 
Commitment and support from the faculty is essential fot 
successful technology transfer activities by their institution. 
Beyond the actual patenting stage, however, the path from 
ail invention to final product or service in the marketplace 
is usually long and expensive. During this"s'age, the sci- 
entific knowledge of tlie inventor needs to feed into the 
process, to assure smooth and continued progress. 

In addition to royalr)' income, faculty recognii.on by peers 
is important. In some schools the preparation ui material 
to obtain a patent and the successful completion is given 
weight in the tenure and promotion process. This invest- 
ment in time and money will not be .made wir'nout incen- 
tives. In fact, the Bayh-Dole Act deliberately grants those 
incentives, to the inventor and the universities Beyond the 
gratification of bringing technology to public use, the in- 
stitution needs to recover its investment. The inventor 
hopes to generate research funding in the short term and 
possibly receive license fees to use for future research sup- 
port. It is important to recognize that without such incen- 
tives, many inventions may not get earned through the 
necessary steps and a commercial opportuniP.' will b 
wasted. This wasting of ideas is a dram on the ctoiiomy, 
irrespective of whether it was public or priv.itc tunding 
which led to the initial invention. 

Many facuir)' researchers were not exposed to the idci of 
intellectual propert)', patents, copyrights, trademarks, cil., 
during their early academic careers. They m.iv have mis 
conceptions and apprehension about the patenting po iress 
One common misconception is that the public benefits 
only when research is rapidly published and provided 
equally to all inrerested parties. Another is that patent:, 
should be obtained only n;/ industiia! researcheis. 

Many universities provide outreach progiam.-. to potential 
university inventors to dispel these misconcej>iions and to 
allow inventors and their laboratories to benefit fiom theii 
ideas. Encouraging faculry to participate in the process ot 
patenting may increase their understanding of the benefits 
of protecting the valuable technology. Involving inventors 



iC 



65 

in the process of marketing the technology is helpful in 
broadening their outside interests. In this manner, the in- 
ventor gains an insight into new potential sources of re- 
search funding as well as the benefits of commercialization. 

Not all faculty will agree that their involvement in com- 
mercialization activities is appropriate. Some contend that 
commercialization taints the university and detracts from 
its mission. They believe that technology transfer should 
be accomplished through more traditional methods, such 
as the education and training of students and the broadest 
dissemination of knowledge through publications. 

Change is inevitable and change will be effected by success 
of the commercialization efforts. Yet, participation in such 
activities should always remain an option, and should re- 
main consistent and focused on the mission of academia. 



66 

Keynote Address Texas Technology Transfer Association 

TEN years after PL 96-517 

Unlike Botticelli's famous painting "the birth of venus", where venus arises full 
blown from a seashell, PL 96-517 enjoyed no such instantaneous and spectacular 
birth. Rather that law was the culmination of a long, slow, frustrating and tedious 
process. 

While, I am sure, most of you are familiar with PL 96-517 since it was the pri- 
mary key which unlocked today's extensive technology transfer efforts in the univer- 
sity sector, I am just as sure that most of you are unfamiliar with its creation. In 
keeping with the caption which appears on the front of the national archives in 
Washington: 

The heritage of the past is the seed that brings forth the harvest of the fu- 
ture 

It seems appropriate to give you an historical perspective of PL 96-517, its origin, 
its function, and its growth, through both voluntary acts and legislation. With that 
as a prologue to a current perspective of the law and its impact, you will be able 
to more fully appreciate what a truly seminal piece of legislation that law was. 

Please keep in mind that when I speak of technology transfer today, I am not 
speaking of the informational transfer that occurs through publications in scientific 
or other journals or through consulting or equivalent relationships that are the 
norm in the university sector. Rather, I am speaking of the transfer of a property 
right, usually through a licensing arrangement. 

ORIGINS 

The concept that "intellectual property" — the products of the mind — had a value 
as property arose during the framing of the U.S. Constitution. It grew out of exten- 
sive thought and correspondence between James Madison, the primary architect of 
the constitution, and Thomas Jefferson. It was considered by Madison important 
enough to be treated separately in the constitution and not merely included in with 
general property right provision. The technology transfer function is, of course, 
based upon the recognition of and the specific provision for that very special prop- 
erty right. 

NATURE OF UNIVERSITY RESEARCH 

During the prevalence of the "ivory tower" concept of universities and the re- 
search that was carried out in them, little though or impetus was given to the trans- 
fer of the results of that research to the public other than through the accepted and 
acceptable route of scientific publication. In fact, under that "ivory tower" concept, 
a researcher who accepted a corporate subsidy aroused the suspicion among his col- 
leagues that he had been diverted from his basic research and had become a tool 
of vested interests. He had accepted "tainted money". 

When, in 1924, it was suggested at the University of Wisconsin that a plan be 
developed to make use of patentable inventions generated by faculty members which 
would: 

1) Protect the individual taking out the patent; 

2) insure proper use of the patent; and, at the same time; 

3) bring financial help to the university to further its research effort. 

The purists quickly applied the "tainted money" theory to the plan. It was feared 
that any such arrangement would divert the scientist from basic research to work 
only on those ideas which appeared to have commercial potential. In other words, 
the research function would no longer be driven by the seeking of new knowledge 
but by the dollar-driven need to solve current problems in the real world, even to 
the development of products and processes to market-ready condition. 

The fears propounded by the purists then, and which are still embraced among 
academia by some, did not materialize. There was no great rush toward patenting. 
There was no evident movement among university researchers toward applied re- 
search tied directly to actual product development. Nor was there any observable 
change in the research scientists' attitude. In fact, university research then, even 
as now, remained essentially basic in character. 

The generation of inventions is almost never the main objective of basic research. 
If inventions do flow from that research activity, it is a largely fortuitous happening 
that takes place because the researcher, or, perhaps, an associate, has the ability 
to see some special relationship between his scholarly work product and the public 



67 

need. It is from the recognition of this connection, which can convert a discovery 
or invention into "patentable invention, that innovation arises. 

A short 15 to 20 years ago the term "intellectual property", if it was known at 
all, would have been viewed in academe as alien and, if known, unwelcome. How- 
ever, at that time, and even much earlier, a number of universities were engaged 
in patenting and licensing intellectual property generated on their respective cam- 
puses with the attendant opportunity to generate funds to aid in supporting the re- 
search function. Prominent among such institutions were the University of Califor- 
nia, Iowa State University, Battelle Development Corporation, research corporation, 
which represented a number of universities and the University of Wisconsin through 
its patent management organization the Wisconsin Alumni Research Foundation. 

THE GOVERNMENT VECTOR 

During the early history of the United States, very Uttle technical development 
work was done by the Government and, therefore, as a practical matter, the ques- 
tion of the Government owning a patent never arose. Gradually, federal agencies 
began to undertake the practical kind of development work which led to inventions. 
Since, prior to World War II, almost all government-financed research and develop- 
ment work was conducted in federal laboratories by full-time government employ- 
ees, there was a small, but recurring, problem of what to do with inventions result- 
ing from such work-inventions which, if made by private parties, would have become 
the subject of patent applications. 

This situation changed rapidly during and after World War II when the techno- 
logical burdens imposed by more and more sophisticated military requirements, as 
well as the increasing complexity of support services, made it quickly evident that 
there were not sufficient resources within the Government itself to undertake all the 
scientific projects necessary to a winning war effort. The absolute necessity to utilize 
the best technical ability available, regardless of its locus, spawned a rapid pro- 
liferation of government-sponsored-and-funded research and development. 

The proper disposition of rights to patents resulting from this work was theoreti- 
cally as important then as now but was never seriously addressed as a major prob- 
lem because of the exigencies of wartime needs. 

Post World War II, the rapid technological strides made under the impetus of a 
wartime footing and the obvious necessity for continuing technological superiority, 
at least in defense-oriented efforts, made it imperative for the government to con- 
tinue to provide support for science. Nor was that support limited to military-ori- 
ented effort. For example, in 1950 Congress finally approved an annual budget of 
$15 million for the National Science Foundation to conduct basic scientific research 
at universities. 

During the same period, hundreds of milHons of dollars were appropriated by the 
Government for medical research as the beginning of an all-out attack on disease. 

With the rapid expansion of scientific projects being undertaken and supported by 
the Government, the same shortage of technical ability and facilities prevalent 
under the pressures of World War II was again in evidence. Since, again, the Gov- 
ernment could not, in its own facilities, do all the necessary work, it sought out 
qualified private companies, universities and non-profit organizations to perform 
much of the research and development under contractual arrangements. In such ar- 
rangements the same old problem of ownership of rights in intellectual property was 
present but was seldom, if ever, directly addressed. In the case of universities and 
non-profit organizations, few were engaged in patenting the result of research and 
in technology transfer activities. Since the money from the Government was readily 
available and flowing freely, the prevailing attitude was to "take the money and 
run . 

The Government itself had not developed any single or overriding pohcy regarding 
the disposition of the rights in intellectual property. As a consequence, each govern- 
mental agency which supported a research and/or development effort, through either 
or both of contractual or grant arrangements, developed its own policy. The ultimate 
result was that prior to the passage of PL 96-517 some 26 different agency policies 
were in place. Often, because of co-mingled funds in many university research 
projects, more than one agency policy had to be considered and the most restrictive 
policy always controlled. 

GOVERNMENT POLICY — MOVE TOWARDS UNIFORMITY 

An effort to effect a more uniform government policy toward inventions and pat- 
ents on a government wide basis, was made in 1963 by Jerome Weisner, President 
Kennedy's Science Advisor. This effort was followed in 1971 by the issuance of a re- 



68 

vised statement of government patent policy by President Nixon. The fundamental 
thrust of that statement was: 

A single presumption of ownership of patent rights to government-spon- 
sored inventions either in the Government or its contractors is not a satis- 
factory basis for government patent policy and, that a flexible, government- 
wide policy best serves the public interest. 

Then, during the period from 1963 to 1971, while experience with the Weisner- 
Kennedy effort was being gained, further efforts were being made to persuade sev- 
eral federal agencies, specifically, the Department of Health, Education and Welfare 
and the National Science Foundation, to enter into institutional patent agreements 
(the I.P.A.). The policies of both of these agencies permitted a waiver of rights to 
the inventions made with their funds. However, on the very few occasions where 
such a waiver was granted (referred to as an 8.2(b) grant of greater rights) it was 
so fraught with restrictive provisions that it presented an unworkable basis for 
transferring technology to the private sector. No commercial firm was willing, under 
the conditions imposed under the waiver, to risk the expenditure of the necessary 
development funds. 

Subsequently, after five years of effort the then Department of Health, Education 
and Welfare, in 1968, issued its first new Institutional Patent Agreement (IPA) to 
the University of Wisconsin. This was followed in 1973, after another five years of 
effort, by an institutional patent agreement between the National Science Founda- 
tion and the University of Wisconsin — the first ever of such agreements with that 
agency. 

That evidence of not only the availability of an IPA, but that those two agencies 
would actually grant them, appeared to provide some impetus to universities to en- 
gage in the technology transfer business, nevertheless, some of the provisions of the 
IPA's available from those two agencies were unacceptable under some universities' 
policies, while many other governmental agencies still clung tenaciously to the pol- 
icy of taking title to all inventions made with funds they had supplied. 

Although limited to two agencies, the IPA's were not only important as manifest- 
ing a change in the attitude of those agencies but more importantly as establishing, 
through negotiation, terms and provisions which were carried into and set the tone 
for the legislative effort which culminated in the passage of PL 96-517, the patent 
and trademark law amendments act, in 1980. In fact, that law is often looked upon 
as a codification of the terms and provisions of the IPA's. 

Finally, there it was, the reward for almost 20 years of effort, PL 96-517, the law 
that changed the presumption of title to any invention made by small businesses, 
universities and other non-profit entities through the use of government funds, in 
whole or in part, from the Government to the contractor-grantee. Another factor, 
often overlooked, is that the law did away with the distinction which the agencies 
had always made between grants and contracts when dealing with universities, a 
distinction which a number of agencies rigorously applied in their zeal to retain 
rights to intellectual property under research contracts. 

The passage of the law was not, however, the end of the battle. It took over a 
year to settle the controversy which arose over the writing of the regulations under 
the law. During the course of the legislative effort, an almost adversarial relation- 
ship had developed as between the universities on the one hand and the Depart- 
ments of Energy and Defense and NASA on the other hand. The nature of that rela- 
tionship became very clear whan those agencies combined to write regulations which 
actually controverted the law. As a consequence, much greater attention was given 
to the regulations by a university group which built into the regulations protection 
against both arbitrary exemptions to the law at agency discretion and to the exer- 
cise of march-in rights. 

Since I was heavily involved in all facets of this historical process, there is a cer- 
tain nostalgia in recapping these developments with you. however, the experience 
is in keeping with the expression: 

Only nostalgia could find anything nice about walking barefoot on a gravel 
road. 

THE ECONOMIC CLIMATE 

To more fully appreciate what has evolved through the sequence of events which 
has been enumerated, it must be kept in mind that through this period, the econ- 
omy of the country as a whole, as well as the economy of each state, was and still 
is in transition. Today, universities operate in an economic climate which: 



69 

1) Is knowledged based — not capital based (although, without question, avail- 
ability of capital is a necessity); 

2) Is entrepreneurially based — witness the large numbers of new companies cre- 
ated in recent years; 

3) Involves world markets — the international aspect of protection for intellectual 
property generated through the research function must be a consideration; 

4) Kenects continuous and often radical technology changes; 

5) Is becoming more decentralized — making state and local options and initia- 
tives more significant; 

6) Is an economy of appropriateness not one of scale — i.e., merely increasing the 
size of a production plant will not necessarily reduce the cost of product or 
increase its quality; 

7) Is increasingly competitive on a global scale — witness the advent of the Euro- 
pean Economic Community scheduled to come into full effect in 1993. 

In view of this continually evolving economic climate, and since new products 
arise from new fundamental ideas as well as from new applications of existing tech- 
nology, the necessity for supplying adequate support for research is evident. How- 
ever, support of research is not enough. That support must be coupled with a cre- 
ative technology transfer capability. Invention without innovation has little eco- 
nomic value. 

With the passage of PL 96-517 and, in the same year, the decision of the Su- 

Ereme Court in the chakrabarty case, which stood for the proposition that merely 
ecause something was alive (in that case a bacterium) it was not precluded from 
being patentable, along with the evolution of genetic engineering concepts, the uni- 
versities were literally propelled into an awareness of the potential economic value 
of the technology that was being generated by their research programs. That fact 
made it self-evident that steps had to be taken to make innovation follow invention 
since invention alone holds little hope for generating needed revenues to support an 
expanding research effort. Because the Government has been and still is the pri- 
mary source of the funds supporting the research effort at universities, the passage 
of PL 96-917 permitted the universities to position themselves, through the estab- 
lishment or expansion of technology transfer capabilities, to better insure that inno- 
vation would follow invention. 

In my view, PL 96-517 was a landmark piece of legislation in that, after many 
false starts and unsuccessful efforts, it was, finally, a recognition by Congress: 

1) That imagination and creativity are truly a national resource; 

2) That the patent system is the vehicle which permits us to deliver that re- 
source to the public; 

3) That placing the stewardship of the results of basic research in the hands of 
universities and small business is in the public interest; and, si^ficantly, 

4) That the existing federal patent policy was placing the Nation in peril during 
a time when innovation was becoming the preferred currency in foreign af- 
fairs. 

Because of the salutary experience with PL 96-517, as reported by the comptrol- 
ler general, and responsive to continuing efforts by the university sector, a subse- 
quent bill was passed by Congress which became PL 98-620. That law removed 
many of the restrictions which had been built into PL 96-517 for the purpose of po- 
litical expediency and gave the universities a much freer rein in conducting tech- 
nology transfer. 

THE HERITAGE OF PL 96-517 

PL 96-517 represented the first cautious step with a new relationship between 
the Government, as represented by its agencies, and the universities. It also 
presaged a new and closer relationship with industry. The certainty of title in the 
universities to inventions made with government funds, which was supplied through 
PL 96-517, provided the major impetus to new and expanding university-industry 
relationships. Inasmuch as the Government always receives an irrevocable royalty- 
free license under any of such inventions, and because of other provisions of PL 96- 
517 and the ensuing regulations under that law, the relationship is, in reality, a 
university-industry-government relationship. 

One of the immediate positive fall-outs resulting from the passage of PL 96-517 
became evident shortly after the bill became law from a comment made by my then 
Congressman, Robert Kastenmeier, who was chairman of the Judiciary Subcommit- 
tee on Courts, Civil Liberties and the Administration of Justice, a key committee 
in the legislative path of PL 96-517. He told me that since now, finally. Congress 
had shown an interest in intellectual property legislation he intended to sponsor 



70 



and introduce much such new legislation. Time proved him to be as good as his 
word. He always lent a sympathetic ear to the university position and sought out 
the advice of the university sector on many new pieces of legislation even prior to 
their introduction. 



IMPACT OF PL 96-517 



How can we take the measure of the practical impact of pi 96- 517? Since we are 
dealing for the most part with the transfer of technology from a protected base, the 
obvious answer is to look for the change in the number of patents which have issued 
to universities since the passage of PL 96-517. 

In 1990 U.S. universities received 2.4 percent of all U.S. origin patents. That is 
up from about 1.0 percent a decade earlier. The changes can readily be seen in fig- 
ure 1. Associated with those data are the number of patents awarded to the top 100 
academic research performers (figure 2). It is evident that the largest research uni- 
versities account for a large and growing share of all academic patents. Among the 
top 100 only 64 received any patents during the period from 1969-1975. During the 
period from 1986-1990, however, 89 of those institutions obtained patents. Even 
more significant is the fact that the number of patents issued to universities has 
doubled in the past six years to a total of 1,346 in 1991. 

That rapid growth is readily evident from figure 3 which also shows the number 
of patents issued to the top 10 universities in terms of numbers of patents obtained. 
Those top 10 universities, the number of patents each obtained in 1991 and their 
respective R&D spending levels in 1990 is shown in figure 4. 

Although the focus is generally on the top performers among universities as meas- 
ured by R&D expenditures, it is interesting to note that the top 10 in the number 
of patents issued are not necessarily the top 10 in R&D expenditures. It is tempting 
to view patents issued on a year-to-year basis as evidence of current activity, par- 
ticularly for those who are not familiar with the patenting process, including appli- 
cation pendency times. Over the short term that kind of assessment can be very 
misleading. Over the longer term, however, for example the 10 year period since the 
passage of PL 96-517, it is a more meaningful measure. The lag time involved and 
the roller-coaster effect in using year-to-year comparisons in utilizing issued patents 
as the measure of activity is evident from figures 1 and 2. 

I believe that figure 1 is highly significant in showing the influence of the passage 
of PL 96-517. It illustrates that the university sector, in the period from 1981-1985 
was gearing-up to either engage in or expand technology transfer efforts and that 
the fruits of those efforts became abundantly clear in the large increase in patents 
issued to that sector in the 1986-1990 period. That upswing is readily evident from 
figure 5 showing patents issued to the 100 institutions with the greatest R&D vol- 



ume. 



In figure 6 I have selectively hsted the numbers of patents awarded to U.S. Uni- 
versities by patent and Trademark Office Technology class for the period from 1969- 
1990. The selection was made to show the classes in which the greatest activity and 
increase in activity was displayed. It can readily be seen that the most active classes 
have been in the several subdivisions under the broad class definition of "drug, bio- 
affecting and body treating compositions" and "chemistry: molecular biology and 
microbiology". The broad class definition "surgery" also indicates high activity. One 
can conclude from that life-science orientation of the classes of patents that the re- 
sults of genetic engineering research is strongly represented, an area of explosive 
growth in academia and the heritage of both PL 96-517 and the chakrabarty deci- 
sion mentioned earlier. 

A further reason for that life-science orientation is undoubtedly the result ot the 
large sums for academic R&D supplied by the National Institutes of Health (NIH) 
and the National Science Foundation. Those two agencies supply the bulk of aca- 
demic R&D money. The patent and licensing activity associated with NIH and NSF 
funds for the fiscal years 1989 and 1990 is shown in figures 6a and 6b. 

That is not to say that there was not a continuing effort going forward to increase 
and diversify technology transfer activities through that 1986-1990 period and also 
today. Most significantly, that continuing effort is evidenced by the fact that of the 
top 100 R&D performers in 1980 fifty-five had at least one patent issue but that, 
overall, by 1989, 144 different universities had at least one patent issued. 

The real measure of technology transfer is not, of course, the number of patents 
which the university sector holds, but the amount of the technology represented by 
those patents which has been transferred. What then has been the licensing experi- 
ence? A recent study of 35 universities by the general accounting office (GAO), 
which was directed to "controlling inappropriate access to federal funded research 
results" is indicative of the present level of activity among those 35 umversities. 



71 

Figure 7 shows the activity for fiscal years 1989 and 1990. Note also, as illustrative 
of the expanding diversity of technology transfer efforts and capabilities, that li- 
censes granted for software and tangible research properties, included under the col- 
umn heading "other", exceed those granted for patents. The $113.1 in license income 
shown is substantially greater than the licensing income of about $30 million which 
112 leading research universities (including almost all of the 35 surveyed for the 
GAO report) reported to the GAO for fiscal 1986. The patent and licensing activities 
of the 35 individual universities surveyed is shown in figure 8. 

I, personally, believe that one of the best measures of the impact of PL 96-517 
is the growth of membership in the Association of University Technology Managers 
(AUTM) and its predecessor organization SUPA (The Society of University Patent 
Administrators). That growth is shown graphically in figure 9. however, the num- 
bers alone, although strong evidence of the increasing interest and involvement in 
the technology transfer function, do not tell the whole story. In its early years SUPA 
annual meetings were considered highly successful if attended by 75-100 people. 
Today we look toward attendance in excess of 600. Also, as the opportunities for 
technology transfer in the university sector evolved under the umbrella of PL 96- 
517 the length, diversity and sophistication of the programs increased. Today, it is 
difficult to accommodate all the varied interests ana positions on the learning curve 
of those attending, the meetings. 

Why the continuing and growing interest in technology transfer by the university 
sector? The primary reason is, of course, that most research at universities is sup- 
ported at least in part by federal funds. In fact, today it is difficult to find an inven- 
tion that does not involve the expenditure of federal funds. In most cases, therefore, 
the terms and provisions of PL 96-517 as modified by PL 98-620 holds sway. The 
fundamental premise in the expenditure of those funds is that the public should 
benefit from the research it supports. Since, most of the research conducted by the 
universities with those funds is basic in nature, inventions which arise tend to be 
embryonic and reqmre further development. PL 96-517 has supplied and continues 
to supply the mechanism by which that further development can be achieved 
through patenting and licensing the private sector. At the same time universities, 
under that law, have the incentive to engage in that activity because of the potential 
for income for the university. There is, of course, that motivation which comes from 
the hope of finding among the invention disclosures which you receive that once- 
in-a-decade invention which turns your program into a gold mine — at least for a few 
years. It can and has happened but, as I am sure you all know, technology transfer 
IS not a get-rich-quick scheme. 

Although it is difficult to establish a direct nexus with PL 96-517, I believe that 
growth of R&D at universities is, at least in part, attributable to that law. Evidence 
in support of the conclusion I have drawn comes from looking at the funding pat- 
terns for R&D in academia. 

In 1991 an estimated $17.2 billion was spent for R&D at U.S. academic institu- 
tions. The character of the work and the performer of that work is shown in figure 
10. That level of expenditure represents a continuing trend of an increasing role for 
academic performers in total U.S. R&D. 

Measured in terms of constant 1982 dollars academic R&D increased an estimated 
74.2 percent between 1980 and 1991. Between 1985 and 1991 the academic R&D 
growth was much stronger for the academic section (estimated at about 44 percent) 
than for any other performing sector. This tends to comport with the large increase 
in patents issued to the university sector during that same period as shown in fig- 
ure 5 discussed earlier. As a proportion of the Gross National Product (GNP) the 
academic share rose significantly over the past decade, from 0.23 to 0.31 percent. 

As is evident from figure 10 academic R&D activities are concentrated heavily on 
basic research. Very little development is done. That breakdown is more readily 
seen in figure 11. Figure 12 shows the R&D expenditures of the top 20 universities 
and colleges by source of funds. 

What is even more interesting is the sources of the funds used by academia for 
its research activities. This is shown in figure 13. as I am sure you all know, and 
as is shown by figures 10 and 13, the majority of the funds for academic R&D are 
provided by the Federal Government. What may be surprising is that the academic 
institutions that performed the R&D provided the second largest source of funds. 
From 1971 to 1991 the institutional share grew from 11 percent to about 20 percent. 
You may also be surprised that, while industry's share of support has risen from 
about 3 percent in 1971 to an estimated 7 percent in 1991, the institution's support 
of R&D is almost three times that of industry. Those who hope that as government 
funding shrinks industry will pick up the slack are entertaining a forlorn hope in- 
deed. The disparity in the amount of funds supplied is much too great. It must also 
be kept in mind that industry philosophies and goals are very different from that 



72 

of both the Government and universities. I do firmly believe, however, that indus- 
try's increased support was, at least in part, the direct result of PL 96-517 since 
under that law the certainty of title to inventions in the universities was estab- 
lished. 

You may also find interesting the difference in sources of R&D funds at public 
and private institutions since I assume that some of both are represented here 
today. Those data appear in figures 14 and 15. The change in support in the decade 
after the passage of PL 96-517 for each group is also shown. 

FEDERAL TECHNOLOGY TRANSFER ACT OF 1986 

What is often overlooked is the fact that PL 96-51 is the first piece of legislation 
that specifically gave the Government the right to own patents. Prior to the passage 
of that law the right to own patents had been considered as a necessary adjunct 
to permit the various government agencies to perform their respective missions — 
it was an implied right only. Also, in situations where a federal employee was a co- 
inventor of a given invention with a university scientist, the Government could as- 
sign its rights in and to the invention to the university subject to the terms and 
provisions of PL 96-517. 

PL 96-517 is given credit for focusing congressional interest on intellectual prop- 
erty — oriented legislation. With that focus established the next ten years saw many 
pieces of such legislation introduced. Some have become law, most have not. One 

giece of legislation which could be considered to have been almost directly spawned 
ecause of or as the result of PL 96-517 is the federal technology transfer act of 
1986 (FTTA). That act was introduced as an amendment to the Stevenson-Wydler 
act of 1980 which act had been intended to promote the utilization of technology 
generated in government laboratories, but was singularly unsuccessful in accom- 
phshing that goal. 

The FTTA was largely a response to the increasingly tough international competi- 
tion facing the United States and the prevalent complaint that "the U.S. wins nobel 
prizes while other countries walk off with the market." The designers of the FTTA 
built the act under certain fundamental principles: 

1) The Federal Government will continue to underwrite the cost of much impor- 
tant basic research in scientifically promising areas that takes place in the 
United States. 

2) Transferring this research from the laboratory to the marketplace is primarily 
the job of the private sector, with which the Federal Government snould not 
compete. 

3) The Federal Government can encourage the private sector to undertake this 
by judicious reliance on market-oriented incentives and protection of propri- 
etary interests. 

The principal points of this act are shown in figure 16. 

The principles enumerated were first tested by PL 96-517 and the FTTA re- 
sponded to the lessons learned from that law, perhaps the most important of which 
was its success in promoting university-industry cooperation. 

The FTTA is, clearly, a direct highly beneficial legacy of PL 96-517. 

THE CURRENT CLIMATE 

The growth of technology transfer has taken place over the last 30 years in an 
environment that has been slowly progressing from hostile to favorable. That pro- 
gression was given major impetus by the passage of PL 96-517. During that period 
we have seen a dramatic change in the attitude of the justice department and the 
interpretation of the anti-trust laws where patents and anti-trust are no longer 
viewed as antithetical. We have seen a move toward a favorable statutory basis 
under which we have much greater freedom to operate. We have an active effort 
on behalf of the administration to obtain equitable treatment for U.S. citizens in for- 
eign venues, both in trade and intellectual property pursuits. We have had numer- 
ous and far-reaching changes in the patent laws of those foreign venues which have 
provided greater opportunities for technology transfer. We have had the benefit of 
a knowledgeable court in the court of appeals for the Federal Circuit which has 
slain many of the mythical dragons attached to intellectual property law to provide 
uniformity of interpretation of those laws and before which we can expect equitable 
treatment. We have obtained the attention of Congress and, particularly, the atten- 
tion in that body to the university sector's perspective on intellectual property law 
issues. We have seen an expansion of allowable patent coverage through unilateral 
acts of the patent and trademark office, through decisions of the patent and trade- 
mark office board of appeals and the courts, and we have seen the introduction and 



J 



73 

passage of legislation favorable to the universities and their technology transfer ef- 
forts. We have also seen developed, not only in the university sector, but in univer- 
sity-industry relationships and university-industry-government relationships, a 
greater awareness of technology transfer and a growing recognition of the possibili- 
ties which can be made available through creative technology transfer efforts and 
a much greater sophistication in handling those possibilities. Today we operate in 
a climate which is better than it has ever been. We would like to think that much 
of this has come about because the universities, as a source of fundamental discov- 
eries and inventions, have been the source of enlightenment for a recognition of the 
value of innovation. 

A word of caution, however!!! We work in a very uncertain business where, on the 
average, it takes in excess of 10 years and hundreds of thousands, even millions, 
of dollEirs to bring an invention to the marketplace. We must also remember that, 
as a licensor, we have very little actual control over the process by which an inven- 
tion is brought to the market or how, ultimately, it is marketed. We are always vul- 
nerable to the attacks of special interest groups, whether inside or outside govern- 
ment, which are based not on fact but on emotion or which may be waged for psy- 
chological reasons. As long as envy and jealousy are part of the human condition 
such attacks are inevitable, only the intensity will rise and fall. 

The emphasis today, as well as the buzzword in Washington is "competitiveness". 
We are seeing mxirmurings and even tangible proposals to restrict the dissemination 
of information from the university sector and even to curtail its technology transfer 
efforts. We are in the midst of an effort by many nations, including the United 
States, to harmonize their respective patent laws. In this regard, as an item of in- 
terest, I have included a table, as figure 17, which shows the number of U.S. pat- 
ents granted by nationality of inventor. Also, with respect to harmonization we are 
faced with a recommendation from the advisory commission on patent law reform 
which will, through the provision of prior user rights in a first-to-file system, dis- 
enfranchise the universities, as well as other non-manufacturing entities utilizing 
the patent system, from exercising the constitutionally-based right in the patentee 
to exclude others. 

We have already passed through an ERA where science was being made subser- 
vient to politics. In today's technologically intense atmosphere, where the maximum 
protection for intellectual property is more than ever necessary to provide protection 
for the heavy investment necessary to technology development, we must remain 
alert. 

Even in the current favorable climate for the technology transfer fiinction as the 
heritage of PL 96-517, views on the issues in the control of intellectual property, 
whether by government or special interests, can lend themselves to emotional mold- 
ing. Outspoken claims to the guardianship of the public interest or welfare is a rich 
field for cultivating political power. We must never forget that freedom demands a 
constant price. 

In the struggle to obtain the passage of PL 96-517 and then PL 98-620, as well 
as on other pieces of proposed legislation which impinged on the university sector, 
the universities, collectively, spoke with a loud and single voice. We must continue 
to do so in all circumstances which threaten the rights and opportunities which we 
have earned over many years by dint of persistence, patience and hard work. This 
will require your active and continuing participation. 

To quote Ralph Weddo Emerson: 

What lies behind us and what lies before us are tiny matters compared to 
what lies within us. 



74 



Patents Granted to U.S. University and Colleges 






■'t-. 1969-75 



1976-80 



W^r 



1981-85 



1986-90 



r 



1,000 2,000 3,000 4,000 5,000 

Patents 



FIGURE #1 



75 



Patents Awarded to Top 100 
Academic Research Performers 



Percentage of academic 

patents awarded to top 

100 performers 



3. 



1969-75 



1976-80 



1981-85 



1986-90 




20 40 60 80 100 
Number of top 100 performers awarded any patents 



FIGURE 12 



76 



Patents to universities 
doubled in past six years 

Number of U.S. patents issued 



1500 



1000 



■ To top 10 U.S. 
universities 

D To U.S. 
universities 



500 



n 




1986 IM? 1988 1989 1990 1991 



FIGURE #3 



77 

MIT Leads in U.S. Patents 
Awarded to Universities - 1991 





Number of 

U.S. Pateats 

Issued in 1991 


R&D Speading 
in 1990 

($ Millions) 


Massachusetts Inst, of Technology 


105 


$312 


University of California 


87 


1344 


University of Texas 


83 


405 


Stanford University 


57 


306 


University of Wisconsin 


45 


310 


University of Florida 


44 


140 


Cornell University 


41 


300 


Iowa State University 


38 


116 


California Institute of Technology 


36 


106 


University of Minnesota 


31 


292 


State University of New York 


26 


191 


Johns Hopkins University 


26 


669 


University of Michigan 


22 


311 



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tajainS -i^Q>fO 

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COCCCCi3oc\, 
3Z3D33£033 






79 



Patents Awarded to U.S. Universities 
by Technology Class: 1969-1990 



Technology Class 1969-75 1976-^0 1981-85 1986-90 



73 Measuring and Testing 

128 Surgery 

dOO Surgery 

604 Surgery 

606 Surgery 

204 Chemistry: electrical and wave energy 

250 Radiant energy 

324 Electricity: measuring and testing 

350 Optics, systems and elements 

356 Optics, measuring and testing 

372 Coherent light generators 
M24} Drug, bio-affecting and body treating 



compositions 

(435^ Chemistry: molecular biology and 
microbiology 

436 Chemistry: analytical and 
immunological testing 

437 Semiconductor device manufacturing 
process 

(^14) Drug, bio-affecting and body treating 
composition 

(^^30~) Chemistry: peptides or proteins; lignins 
— or reaction products thereof 



FIGURE #6 



69 


59 


71 


105 


68 


67 


110 


224 


5 


5 


11 


13 


7 


11 


36 


78 


14 


8 


21 


54 


41 


36 


65 


92 


38 


54 


46 


117 


30 


16 


37 


129 


20 


24 


42 


119 


19 


24 


31 


86 


15 


14 


27 


74 


52 


69 


137 


261 


58 


84 


192 


446 


23 


56 


72 


65 


5 
46 


14 
119 


26 

225 


50 

464 



14 79 117 



80 

Patenting and Licensing of 
Technology Resulting from NIH or NSF - Funded Research 
(Fiscal Years 1989 and 1990) ' 





Patent Applications filed 


Licenses Granted 




Universities 


Patents Other 


License Income 


All Surveyed 


690 


329 207 


$82.0 


Top Five 


274 


203 156 


67.1 



Dollars in Millions 



FIGURE I6A 



Income From Exclusive and Nonexclusive License 

for NIH or NSF Funded Technology 

(Fiscal Years 1989 and 1990) 



Licenses Granted 



License Income 



Universities 



Exclusive 



Nonexclusive 



Exclusive 



Nonexclusive 



All Surveyed 



197 



339 



$29.3 



$52.7 



Top Five 



99 



263 



20.6 



50.8 



Dollars in Millions 



FIGURE »6B 



Patenting and Licensing of Technology Resulting 

From All Sources of Funding 

(Fiscal Years 1989 and 1990 



Universities 



Licenses Granted 
Patent Applications Filed Patents Other License Income 



All Surveyed 



2,043 



731 



779 



$113.1 



Top Five 



893 



393 



481 



81.8 



Dollars in Millions 



FIGURE 17 



i 



81 

Individual UniversiUes' Patent and Liccnsiiij^ Activities 



Surveyed 
university 



Patent 
Invention applications Patents Licenses granted License 
disclosures filed received Patents Other Income 



Alabama 



95 



California 
Berkeley 



96 



Los Angeles 



83 



San Diego 



72 



San Francisco 



101 



Santa Barbara 



30 



California 
Institute of 
Technology 



61 



Carnegie Mellon 



65 



Chicago 



86 



Colorado 



135 



Columbia 



109 



Cornell 



181 



Duke 



105 



Harvard 



165 



Illinois 
Indiana 



104 



47 



Johns Hopkins 141 

Maryland 79 



HIT 



609 



Michigan 



162 



Michigan State 



64 



Minnesota 



309 



North Carolina 



138 



Northwestern 
Pittsburgh 
Princeton 
Purdue 



57 



51 



45 



102 



Rochester 



67 



Southern 
California 



99 



Stanford 



311 



Washington 
University 



100 



University of 
Washington 



148 



Wisconsin 



225 



Yale 



108 



Yeshiva 



30 



Total 



4 .380 



11 



62 



47 



49 



98 



16 



44 



15 



45 



71 



51 



141 



49 



61 



25 



57 



16 



411 



75 



30 



118 



39 



20 



21 



20 



40 



18 



30 



79 



52 



38 



125 



50 



10 



2.043 



22 



17 



14 



37 



13 



29 



JL2_ 



24 



17 



37 



54 



23 



37 



23 



18 



200 
44 



83 



10 



15 



19 



19 



31 



30 



15 



62 



22 



14 



48 



21 



1.036 



12 



10 



79 



12 



36 



37 



12 



10 



13 



64 



10 



84 



10 



15 



120 



16 



46 



35 



17 



731 



11 



68 



29 



30 



14 



36 



58 



43 



19 



56 



40 



256 



27 



24 



14 



779 



4 57 



808 



_12i 



1.009 



11.394 
83 



803 



166 



98 



3.762 



11.540 



1.186 



605 
2.568 
672 



251 -^ 



1.059 



208 



5.213 



716 



12.053 
2.286 



685 



232 



483 



157 



1.084 



442 



283 



24.786 



598 



3.024 



21.999 



1.170 

754 



S113.055 



FIGURE #8 



82 



AUTM MEMBERSHIP 



1000 



800 - 



600 



400 - 



200 - 




1976 1978 1979 1980 1982 1986 1986 1987 1988 1989 1990 1991 1992 



FIGURE #9 



83 



Nalioiial and Academic R<JvD Kxi)endiliircs 
by Cliaracter of Work and l^crCoriner: 

1991 



Percent 

100 




catieniic R&D Nalionai R&D L3asic researcli Applied reseaicli 
Sr/? billion) ($152 billion) ($23.5 billion) (S35 4 billion) 



FIGURE rlO 



84 

Character of University R&D Spending 

1989 



Basic Research 
$9685 




; Development 
$721 



Applied Research 
$4581 



Millions of Current Dollars 



i'lGURE #11 



R&D Expenditures at the top 100 University 
and Colleges, by Source of Funds: 1989 

(Top 20 Shown) 







Institu- 






Stale and 










tional 




Federal 


local 


Academic 


All otner 


AcaCe.-nic inslilul'ons' 


ranking 


category 


Total 


Gov't 


govt 


Industry institutions 


sources 



Total, all institutions' 

1 Massachusens institute ol Technology Private 

2 Cornell University Private 

3 Stanford University Private 

4 University ol Wisconsin-Madison Public 

5 University ol Michigan Public 

6 University ol Minnesota Public 

7 Teias A 4 M Universily-2» campuses Public 

3 University ol Calilornlj-Los Angeles Public 

9 University ol Washington Public 

10 Pennsylvania Slate University 

all campusfu Public 

Total, 1st 10 Institutions 

1 1 University ol Calilornia-San Francisco Public 

12 Johns Hopkins UniversUy' Pfival* 

13 University ol Calilornia-San Diego PubTic 

14 University ol lUmois-UrtMna PubTic 

15 University ol Calilornia-BerKelty Public 

16 Harvard University Privalt 

1 7 University ol Teias-Austin Public 

18 University ol Calilornia-Davis Public 

19 Georgia Insi ol Technology-all campuses. , . . Public 

20 University Ol Arizona Public 

Total, 1st 20 institutions 



14.556.179 


8.550.551 


1.238.860 


983.574 


2,700,657 


1,082.539 


287.157 


215.140 


3,211 


39.650 


6.692 


22.464 


286.733 


157.984 


40.405 


16,627 


49.157 


22.560 


285.994 


238.650 


392 


13.764 


14.261 


18,927 


285.982 


169,452 


49.054 


11,035 


37,918 


18,525 


280.905 


174.875 


2,533 


22.023 


61,626 


19.848 


258.614 


132.880 


4Z.542 


12.309 


43,713 


27.090 


250.706 


93.584 


65,179 


21,204 


63,053 


7,686 


227.828 


159,002 


3,479 


7.548 


32,975 


24,824 


221.712 


182.453 


3.795 


19,135 


13,181 


3.148 


219.930 


114.546 


8.907 


30.255 


66.036 


85 


2.605.561 


1.638,666 


219.497 


193,631 


388.610 


165.157 


219.446 


159.906 


8.770 


6,226 


24,269 


20.275 


217.295 


168.267 


2.087 


11.013 


17,577 


18.351 


Z16.991 


171.479 


3.288 


6.624 


19.057 


16.343 


210.590 


114.398 


25.838 


15.785 


47.336 


7.233 


209.967 


124,371 


7.154 


8.480 


59.984 


9.978 


209.519 


143,451 


1.135 


10.461 


16.602 


37.870 


193.337 


94,311 


15.724 


2,694 


64,591 


16.017 


180.297 


72.718 


10.322 


8.039 


79,601 


9.617 


174.664 


98.048 


1,093 


21,346 


54,177 





174.119 


80.533 


7,257 


9,729 


66,070 


10,530 


4.611.786 


2.866.148 


302,165 


294,228 


837,874 


311,371 



■:g(.'S£ 112 



85 



Academic Institutions Fund a Fifth 
of all Academic R&D 



Federal Government 59,9% 




Instiiutional Funds 18,1% 



Source: National Science Foundation 



:'uSE »13 



ndustry 6.6% 



Other Sources 7,2% 



State & Local Gov. 8.3% 



Fiscal 1989 Academic R&D 
Expenditures = $15 Billion 



Sources of R&D Funds at Public 

Institutions by Sector: 

1980 vs 1989 



1980 



Federal Government 61.1% 




Academic Inst. 17.4% 

Other Sources 6.2% 
Industry 3.7% 

State & Local Gov. 11.7% 



Federal Government 62.8% 



fIGURE IK 



1989 




Academic Inst. 23% 



Other Sources 6.6% 
Ip'Industry 6.4% 

State & Local Gov. 11.3% 



91-388 - 95 - 4 



86 



Sources of R&D Funds at Private 

Institutions by Sector: 

1980 vs 1989 



1980 



Federal Government 78.8% 




Academic Inst. 7,4% 



Other Sources 7.4% 

ndustry 4.3% 

tate & Local Gov. 2% 



1989 



Federal Government 73.3% 



FIGURE K15 




Academic Inst. 8.8% 

Other Sources 8.5% 

ndustry 7% 
State & Local Gov, 2.4% 



Federal Technology Transfer Act of 1986 
Principal Points 



Amends the Stevenson-Wydler Act of 1980 (PL 96-480) 

Strengthens Policy Making Technology Transfer Part of Lab Mission 






Lab with More Than 200 S&E Personnel Must Have a Full Tim^ Orta ; "" ^ 

Each Agency must Report Annually with Budget Submission 

Estabhshes the Federal Laboratory Consortium 

Provides Authority for Government Labs to Enter into Cooperative R&D Agreements 

Provides 15% of Royalties to Inventors and the M^ority of the Balance to Labs 



tMCfi 



FIGURE 116 



87 



U.S. Patent Granted by Nationality 
of Inventor and Year of Grant: 1963-1990 





Tom 


1863-76 


1977 


1971 


1978 


leeo 


1811 


1882 


1983 


188. 


1865 


1986 


1987 


1968 


1989 


1990 


■f^. 


1 902.916 


924.876 


65.263 


66.098 


48.850 


61.610 


65.766 


57682 


56.855 


67 166 


71 649 


70.776 


82.860 


77.799 


95.282 


69 982 


w 5 s'j'r 


' 227. 51B 


674.268 


41.480 


41.251 


30,076 


37.351 


39:21 


33.881 


32.667 


36354 


39 5'9 


38.07! 


'3 '62 


40.416 


50036 


'I 195 


(82 'as 

38.2.. 

300.2JI3 

6.513 


466.8ae 

23268 

161.560 

2.555 


29.561 

1.464 

10.249 

16« 


28.418 
1.233 

10.398 
201 


21.143 

861 

7.803 

168 


25.863 

1.232 

8.838 

217 


27.621 

1.116 

1O240 

244 


24.061 

1.003 

8538 

268 


24.037 

1.044 

7,558 

228 


27897 

1.229 

8.881 

247 


28 943 

1.125 

9245 

236 


27.305 

1.013 

9,453 

307 


31.267 
973 

10,853 
3<9 


29.267 
728 

io.o»e 

355 


35.717 
865 

12.889 
463 


33 283 
970 

12.'77 
465 


^ S e»n«o 

Fo'lign owntd 

Fortign corporiuonf . , 

ro'«>g/i inOividuAtl ^ > 


675.400 


250.587 


23.713 


24.847 


18.774 


24,458 


26.545 


23.991 


23.988 


26.632 


32.100 


32.700 


38.398 


37.383 


45.226 


42787 


53.780 


25.013 


i,8e< 


1.862 


1,364 


1.684 


1.839 


1.715 


1.658 


2.028 


2.268 


2.166 


2.442 


2.146 


2.848 


2.864 


621.602 


225,574 


21,815 


22.885 


17,410 


22,763 


24.708 


22.276 


22.330 


28.803 


29.832 


30.534 


36.956 


35.237 


42.378 


40.101 


512.515 

7.6*7 

101.420 


175.152 
2,553 
47.»«9 


17,880 
3,7!0 


18.873 
248 

3.763 


14,446 

188 

2,778 


18,M2 

253 

3.850 


20,546 

248 

3.811 


18,587 

389 

3.320 


19.020 

338 

2.974 


22.888 

438 

3,377 


25.716 

482 

3.634 


28.223 

477 

3.834 


31.977 

551 

4.428 


30,575 
453 

4,209 


36.837 

443 

4.988 


34.833 

413 

4 755 


Ew'OPCan Convnufvty 


67S.400 


250.587 


23,783 


24.847 


18,774 


24,459 


26.545 


23.981 


23.988 


28.832 


32.100 


32.700 


39.398 


37,383 


45.226 


42.787 


337. IM 


148.743 


12.316 


12.646 


8,538 


12,188 


12.834 


11.346 


10.937 


12.728 


13.826 


13.677 


16.246 


15,080 


17.684 


16.063 


Jap«n 

Uruito Kingoom 


203.540 


43.481 


ej17 


6.810 


5,250 


7,124 


8.387 


8.149 


8.782 


11.108 


12.743 


13.198 


16.539 


16,137 


20.100 


18.444 


152.706 


63.310 


5.537 


5.850 


4.527 


5.745 


6.250 


5.408 


5.423 


6.254 


6.665 


6.795 


7.815 


7300 


8.286 


7.541 


73.534 


38.901 


2.654 


2.722 


1.810 


2.406 


2.475 


2.134 


1,831 


2.271 


2.495 


2.<oe 


2.777 


2.581 


3.091 


2.778 


57,500 


25.084 


2.108 


2.119 


1.604 


2.088 


2.181 


1.975 


1.895 


2.162 


2.398 


2.365 


2.868 


2.655 


3.134 


2.854 


- 


32,835 


14.678 


1.219 


1.226 


862 


1.061 


1.135 


990 


1.000 


1.206 


1.340 


1.311 


1.583 


1.488 


1.857 


1 848 


C«naei 


32,628 


15.388 


1.346 


1.330 


1.025 


1.265 


1 239 


1.147 


1.017 


1.174 


1233 


1.208 


1.373 


1.244 


1.356 


1 281 


' 


20835 


8.179 


756 


725 


586 


805 


863 


752 


625 


784 


919 


995 


1.183 


1.075 


1.281 


1.257 




20,422 


9.500 


662 


826 


573 


822 


766 


685 


823 


701 


857 


883 


948 


776 


834 


786 


Tna N«in«rlanO( 


18,283 


7.902 


708 


658 


525 


654 


641 


618 


■ 626 


726 


766 


721 


921 


605 


1.060 
357 


851 
31! 
174 
82 


USSn ■ . - 


6,669 


3242 


255 


264 


185 


244 


263 


224 


205 


240 


2'0 


2«2 


294 


302 


6.580 


3.128 


384 


412 


354 


460 


373 


209 


222 


21' 


1'7 


116 


121 


96 


160 


£ail Gtrmjny 

T».*an 

Hong Kong 


1.809 


505 


60 


66 


63 


87 


98 


112 


106 


111 


108 


131 


127 


94 


128 


690 

3.072 

807 

527 


53 
52 

51 
138 


26 

52 

5 
9 


24 
29 
12 

21 


18 
38 

4 

13 


35 
65 
8 
27 


52 
80 
15 
33 


59 

88 
14 
IS 


54 
65 
28 

14 


68 
88 

28 
24 


53 
17' 
38 
2! 


53 

208 
'5 

30 


64 
343 
64 
34 


'6 

457 

95 

41 


50 
582 
157 

'7 


34 
731 
224 

52 


SOURCE Paifni .no Ti.O.m./ 


OK.. P.LIWV ^'"^ 


.1 in« uni(.tf 5ui«i. 


HJ-IM«(WuA^i«n. OC.AwgvU 1890). 














































fcnc. i Eng^tt'<f^ ifiCKtivi - 'fH' 


:--:gure tn 



































88 

Senator DeConcini. Thank you, Mr. Bremer. Those will be in- 
cluded in the record. 

Ms. Conta, would you, please, summarize your statement for us? 
Your full statement will appear in the record. 

STATEMENT OF BARBARA CONTA, DIRECTOR, TECHNOL- 
OGYTRANSFER, REGENERON PHARMACEUTICAL CORP., 
TARRYTOWN, NY, REPRESENTING BIOTECHNOLOGY INDUS- 
TRY ORGANIZATION, WASHINGTON, DC 

Ms. CONTA. Mr. Chairman, thank you for your invitation to 
present the views of the biotechnology industry here today. 

My name is Barbara Conta and I am director of technology 
transfer at Regeneron Pharmaceuticals in Tarrytown, NY. In my 
testimony, I will describe the extraordinarily positive impact that 
the Bayh-Dole Act has had upon companies such as Regeneron, but 
I will also sound a warning that this effectiveness is threatened by 
certain technology transfer policies of the NIH and by legislation 
which may be introduced to codify and extend these policies. 

Regeneron is representative of the U.S. biotechnology companies 
in many ways. We were founded in 1988; we are young; we were 
founded with a mission of developing biotechnology-based products 
to treat neurological diseases and conditions for which no cures 
exist. We are developing neurotrophic factors, which are proteins 
that may have the potential to be used as drugs to treat a wide 
variety of neurological conditions such as ALS, Neuropathies, Par- 
kinson's Disease, and Alzheimer's Disease. 

Regeneron currently employs 266 people. Our two leading prod- 
uct candidates, BDNF and CNTF, are now in clinical trials for 
ALS. Regeneron has no products on the market as yet. 

I am here today to represent the views of Regeneron and also 
Bio, the international trade organization which represents the 
emerging biotechnology industry in the United States. We very 
much appreciate the leadership of the Chairman and members of 
this committee on patent issues of interest to the biotechnology in- 
dustry, including the Biotechnology Patent Protection Act, and in 
eliciting our views on technology transfer today. 

I want to turn to the technology transfer process under Bayh- 
Dole and the impact it has had on small biotechnology companies 
such as Regeneron. Regeneron enters into several different types of 
Bayh-Dole technology transfer agreements. Most frequently, they 
are research collaboration agreements with academicians who want 
Regeneron's scientific know-how and materials for their research 
projects. In return for providing materials and scientific help, we 
seek to license rights in any inventions which are generated. The 
university thus has a potential licensee to satisfy its Bayh-Dole ob- 
ligations and we may have access to a new and useful discovery. 

Regeneron currently has agreements of this type with 329 inves- 
tigators all over the world. Of interest to the members of this com- 
mittee, I should mention that they include 1 from Alabama, 23 
from California, 2 from Colorado, 15 from Massachusetts, 1 from 
Utah, and 1 from Vermont. We don't have any from Arizona yet. 

Regeneron provides proprietary substances to these investigators 
with an aggregate value in the millions of dollars. So you can see 
that the technology transfer process goes in both directions. We 



89 

transfer techrlology into federally-funded labs at at least the same 
rate that we hope to transfer it out. 

The transfer of technology under Bayh-Dole has been very pro- 
ductive and successful for Regeneron, as it has for almost all bio- 
technology companies. But with this successful process in place, 
why are we concerned about a threat? 

Our ability to commercialize the technology transferred to us is 
dependent upon whether it is transferred under terms which recog- 
nize the economic climate in which the biotechnology industry oper- 
ates today. The transfer of technology to the private sector initiates 
a long and costly process by the recipient company to develop the 
technology and to evaluate its commercial potential. This process 
requires years of basic and applied work with millions of dollars to 
arrive at a product candidate. Many millions of dollars more are 
then required to take the product candidate through the regulatory 
approval process and bring it to market. 

Most product candidates never make it to market, so a high de- 
gree of risk accompanies this process. 

As a corporation, we have shareholders who hope to receive a 
reasonable return on the risk that they take by investing in our 
company. Regeneron hopes some day to be a profit-making com- 
pany. We strongly seek to justify the long-term expectations of our 
investors, who often have to wait 5 to 10 years before biotechnology 
companies begin to earn revenues. Only 1 percent of America's 
1,300 biotechnology companies is profitable. As an industry, we lost 
$3.6 billion last year. 

We are absolutely dependent upon our ability to raise the capital 
necessary to conduct our research since we have no profits as yet 
to sustain our research. Investors have infinite other investment 
opportunities. No amount of sentiment will convince them to invest 
in our company if they don't feel that we have the potential to pro- 
vide a rate of return that is commensurate with the risk they have 
taken. Any factor that affects this potential to return investment — 
such as the threat of drug price controls — drives away investors. 

A fundamental threat to the Bayh-Dole Act has the potential for 
undermining the effectiveness of technology transfer. This threat 
comes from the practice of the National Institutes of Health to in- 
clude drug pricing review clauses in its technology transfer agree- 
ments. Alone among Federal agencies with technology transfer pro- 
grams, the NIH has as a matter of administrative discretion in- 
cluded certain terms which permit NIH to specify the price for any 
product which is developed from the transferred technology. 

This pricing clause now applies only to CRADA's relating to the 
intramural and not the extramural research programs funded by 
NIH. The statute does not require that NIH involve itself in pricing 
products which are eventually commercialized as a result of a 
CHAD A. In fact, many argue that the NIH practice is contrary to 
NIH's statutory authorization. 

The NIH price review process is undermining technology transfer 
for one simple reason: there is no way for a private company to 
evaluate the impact of the drug pricing clauses on the potential for 
commercial development of a product. As a result, an increasing 
number of biotechnology and pharmaceutical companies, including 
Regeneron, now refuse to enter into CRADA's with NIH. This 



90 

means that a large portion of NIH intramural research is not cur- 
rently being transferred to or developed by the private sector. The 
flow has stopped. 

Unfortunately, the threat from this discretionary NIH program 
may soon be increased. Bio understands that legislation may short- 
ly be introduced which would require the inclusion of drug pricing 
clauses in NIH intramural technology transfer agreements. This 
would not only prevent NIH from reforming its current practices, 
which many at NIH are eager to do, but it would establish a dan- 
gerous precedent that could be extended with disastrous results to 
all extramural technology transfer programs. As we have seen with 
CRADA's, this would effectively stop the flow of technology into the 
private sector. 

The issue is not whether private companies are willing to share 
the economic benefits of transferred technology with the Govern- 
ment. We are willing to pay royalty fees and reasonable up-front 
licensing fees. With a royalty requirement, a private company can 
take these costs into account as it develops a product. This is 
standard practice when one private company is licensing tech- 
nology from another. Royalty requirements work because firms can 
predict what they will cost and how they will affect their potential 
for commercial success with the products. 

Instead of attempting to set prices, NIH should aggressively li- 
cense its technology in exchange for up-front cash payments or roy- 
alties on sales. An effective NIH royalty process could generate up 
to $1 billion in royalties. 

In conclusion, I would like to praise Senators Bayh and Dole for 
their foresight and craftsmanship on technology transfer policies. 
Let me urge Congress to reject any new legislation which will un- 
dermine the effectiveness of this landmark legislation and urge this 
subcommittee and the NIH to review their current price review 
poUcies. The U.S. biotechnology industry and the American public 
have a vital stake in this process. 

Thank you very much. 

[The prepared statement of Ms. Conta follows:] 

Prepared Statement of Barbara Conta on Behalf of the Regeneron 

Pharmaceutics, Inc. 

SUMMARY 

The Bayh-Dole Act is working because it reflects the economic and regulatory cli- 
mate in which the biotechnology industry operates. 

The effectiveness of the Bayh-Dole is threatened by the counter-productive tech- 
nology transfer policies of the National Institutes of Health and legislation which 
may be introduced which would codify these policies. 

Alone among the Federal agencies with technology transfer programs, NIH has, 
as a matter of administrative discretion, included in its technology transfer agree- 
ments certain terms which give NIH the contractual right to specify the price for 
any product of the firm which is developed from the transferred technology. This 
pricing clause now applies only to CRADAs relating to the intramural (Bethesda) 
and not the extramural (university and foundation) research programs funded by 

Unfortunately, the threat from this discretionary NIH program may soon be 
compounded. We understand that legislation may shortly be introduced which would 
institutionalize the counter-productive technology transfer practices of the NIH. 

The further risk with this legislation is not only that it would prevent NIH from 
reforming its current practices but that it would establish a dangerous precedent 
that could well be applied with disastrous results to all extramural technology 



I 



91 

transfer programs and other federally funded programs to which it is later applied. 
The risk of this legislation to federally funded technology transfer programs is not 
theoretical or speculative. We know the risk is real because we have direct experi- 
ence with the adverse impact on the NIH technology transfer process. 

There is no clear rationale for why price controls would not apply to all licenses 
of NIH grantees, including private universities and foundations. The NIH price con- 
trol mechanism does not yet apply to the licenses of universities and foundations 
which have received NIH grants despite the fact that these licenses may be entirely 
based on the funding provided by the grants. It is in the direct interest of every 
university and foundation grantee of the NIH to oppose any legislation to enshrine 
the NIH "reasonable price" clause and in the interest of every other transferee of 
government technology to oppose it as well. 

Any legislation which confirms or extends the NIH price control scheme will set 
a potentially dangerous precedent for all government technology transfer and busi- 
ness assistance programs. Certainly every grantee of NIH is in jeopardy. There is 
a very slippery slope here. There is no clear rationale why price controls should not 
be imposed on CRADAs of other government agencies, including the Department of 
Energy, grantees of the National Science Foundation, grantees of the Advanced 
Technology Program, and recipients of SBIR awards. 



Good morning. My name is Barbara Conta and I am Director of Technology 
Transfer for Regeneron Pharmaceuticals, Inc. of Tarrytown, New York. 

I will testify today to the wisdom of the Bayh-Dole Act, but I will explain that 
its effectiveness is threatened by the counter-productive technology transfer policies 
of the National Institutes of Health and legislation which may be introduced which 
would codify these policies. 

Regeneron was founded in 1988 to develop biotechnology-based products to treat 
neurological diseases and conditions for which no cures exist. Regeneron is engaged 
in the discovery and development of neurotrophic factors, which are naturally occur- 
ring proteins that promote the survival and function of cells of the nervous system. 
These neurotrophic factors may have the potential to be used as drugs to treat a 
wide variety of neurological conditions, including motor neuron diseases such as 
amyotrophic lateral sclerosis (ALS, commonly known as Lou Gehrig's disease), dis- 
eases of the peripheral nervous system (such as diabetic neuropathy), and diseases 
of the central nervous system (such as Parkinson's disease and Alzheimer's disease). 

Regeneron has established its own research and development staff and facilities 
in addition to entering into relationships with corporate partners and researchers 
at major medical and academic institutions to pursue the development of these po- 
tential therapeutic drugs. We currently employ 266 people in this discovery and de- 
velopment effort! Our two leading product candidates, BDNF and CNTF, are pro- 
teins manufactured through recombinant DNA technology. They are currently in 
clinical trials to determine their safety and efficacy in the treatment of ALS, an in- 
evitably fatal disease of motor nerves. Regeneron currently has no products on the 
market. 

I am here today to represent the views of Regeneron and of the Biotechnology In- 
dustry Organization (BIO), the international trade organization which serves and 
represents the emerging biotechnology industry in the United States and around the 
globe. As the leading voice for the biotechnology industry, BIO represents over 500 
companies of all sizes, including Regeneron, which are engaged in the development 
of products and services in the areas of agriculture, biomedicine, diagnostics, food, 
energy and environmental applications. It also represents biotechnology centers at 
universities. 

A large portion of the biotechnology industry is focused on the development of 
medical products. Twenty-three genetically engineered drugs and vaccines are now 
commercially available to prevent or treat such diseases as AIDS, diabetes, 
dwarfism, hepatitis, heart attacks, anemia, leukemia, renal cancer, organ transplant 
rejection, and Kaposi's sarcoma. In addition, drugs and vaccines are being developed 
by emerging biotechnology companies to treat such intractable diseases as cancer, 
arthritis, Alzheimer's, ALS, and genetic disorders. 

The biotechnology industry appreciates the interest of this subcommittee in solic- 
iting the views of the biotechnology industry on the Bayh-Dole Act and technology 
transfer programs. BIO and the biotechnology industry also very much appreciate 
the leadership of the Chairman and members of this committee on patent issues of 
interest to the biotechnology industry. 



92 

Perspective of a private corporation 

Before I talk about the technology transfer process, it is essential to explain the 
economic and regvilatory climate in which the biotechnology industry operates. Our 
ability to commercialize the technology transferred to us is dependent on whether 
it is transferred under terms which recognize this economic and regulatory climate. 

Private corporations Uke Regeneron are in business to create medicines which can 
improve the quality of life and health of individuals who are suffering from diseases. 
We are intensely and emotionally involved with the pain and costs associated with 
disease and its victims, their families, and caregivers. We are working in this indus- 
try because of this involvement. The CEO of Regeneron is a board certified clinical 
neurologist who also holds a Ph.D. in Pharmacology. Our senior management in- 
cludes scientists and clinicians who have treated neurodegenerative diseases and 
who joined Regeneron specifically to develop novel treatments for neurodegenerative 
diseases for which no curative therapies currently exist. 

As a corporation, we have shareholders who hope to receive a reasonable return 
on the risk that they take by investing in our company. Our employees have stock 
options and they hope that the value of their options will rise. Regeneron hopes to 
be a profit-making company. We strongly seek to justify the long-term expectations 
of our investors, who often have to wait for five to ten years before biotechnology 
companies begin to earn revenues. 

Approximately one percent of America's 1,300 biotechnology companies are profit- 
able and as an industry we lost $3.6 billion last year. We are dependent upon our 
ability to raise the capital necessary to conduct our research since we have no prof- 
its as yet to sustain our research. 

Our investors have infinite investment opportunities, and they tend to look at in- 
vestments in our company or any other with the compassion of a statistician. No 
amount of sentiment will convince them to invest in our company if they do not feel 
we have the potential to provide a rate of return that is commensurate with the 
risk they have taken. 

Let me talk about some of the risks of investing in a biotechnology company. Bio- 
technology investors take the risk that we will be able to identify molecules that 
will change the pathology of disease, the risk that we will be able to demonstrate 
to the FDA the safety and effectiveness of a medicine, and the risk that we will be 
able to sell this medicine with a profit in the marketplace. Each one of these risks 
is considerable. 

In terms of the technological risk, it is estimated that only five in 4,000 com- 
pounds screened in preclinical testing make it to human testing. Only one of those 
five tested in people is approved for sale. The approval process is approximately 
seven years for a biopharmaceutical, according to a recent article in BioPharm. The 
same article added, 'The seven-year development time for biopharmaceuticals is an 
average for the first successful products derived through biotechnology. This figure 
does not include all biopharmaceuticals that reached the stage of clinical testing 
during the 1980's. Because the biotechnology industry is still young, products with 
relatively long development times are less likely to have been approved than prod- 
ucts with relatively short ones." i 

This scientific research is exceedingly expensive. The Office of Technology Assess- 
ment finds that the average cost per new chemical entity (NCE) is $359 million. 2 
This survey did not cover the cost of developing a biotechnology drug, but analyses 
done by our industry find that the cost of developing a biotechnology drug may be 
similar. We know that Genzyme and Amgen, two member companies of BIO, raised 
$328 and $264 million, respectively, in equity before they brought their first prod- 
ucts to market. Genentech has spent $1.6 bilhon on research and development and 
has four basic products on the market. 

The biotechnology industry is the most research intensive industry in the history 
of civilian manufacturing, based on research and development as a percentage of 
revenues and on a per employee basis. In a 1993 survey by Business Week seven 
of the top ten firms in the U.S. in terms of research expenditures per employee were 
biotechnolo^ companies — Biogen ($178,168 per employee), CJenentech ($115,893), 
Centocor ($105,291), Amgen ($78,072), Chiron ($76,554), Genetics Institute 
($66,572), and Immunex ($55,034 ).3 On average, biotech firms spend $59,000 per 
employee on research. The U.S. corporate average was $7,106. Ernst & Young re- 



1 Brigitta Bionz-Tadmor and Jeffrey S. Brown, "Biopharmaceuticals and Conventional Drugs: 
Comparing Development Time," 44-49, BioPharm, (March 1994). 

2 U.S. Congress, Office of Technology Assessment, Pharmaceutical R&D: Costs, Risks and Re- 
wards, OTA-H-522 (Washington, DC: U.S. Government Printing Office, February 1993). 

3 Peter Coy et al, "In the Labs, the Fight to Spend Less, Get More," Business Week, (June 
28, 1993), 102-127. 



93 

ports that biotechnology companies spent $5.7 billion on research in 1993, a 14 per- 
cent increase over 1992.4 The research is expensive for one simple reason; we are 
advancing basic and applied science at the same time. 

Public financing was especially difficult for biotechnology companies in 1993. The 
American Stock Exchange Biotechnology Index lost 32.6 percent last year. Several 
public biotech companies were forced to do private investment in public equity 
(PIPE) financings, deals where public companies sell stock to private investors at 
a discount to their current stock price. 1993 was a difficult year because in large 
part investors were scared bv the de facto price controls in the Administration's 
health care plan. They feared that some widely discussed points of health care re- 
form would mean that they would not recoup their investment in a company that 
was close to bringing a product to market. According to many press accounts and 
three BIO surveys of our companies developing therapies for AIDS, cancer, and 
other deadly and costly diseases, our companies are cutting back on research. 

The biotech industry is in a critical stage of development and research. There are 
23 biotech medicines that have been approved for sale in the U.S. by the Food and 
Drug Administration (FDA). Two hundred and seventy biotech therapeutics and 
cures are now in human clinical trials. According to Ernst and Young, two thousand 
potential therapies and cures are in early development stages. 5 Now is the time 
when the biotech industry needs increasing amounts of capital to bring these prod- 
ucts to market so that they can improve our quality of life. 

Ernst & Young reports that biotech companies are raising capital now at 25 per- 
cent of their burn rate (the rate at which capital is being expended.) According to 
a recent report by Dr. Robert Goldberg of the Gordon Public Pohcy Center at Bran- 
deis University, 75 percent of biotechnology companies have 2 or fewer years of cap- 
ital left. That means that a staggering 975 companies will need to go to the market 
in the next two years or face severely restricting their activities, going out of busi- 
ness, merging or selling rights to a larger firm. 

The FDA risk for our companies is well known. We have had very public cases 
where biopharmaceutical companies have failed to meet FDA's standards and have 
found the value of their stock drop as much as 60 percent in a day. The caution 
of the FDA in approving medicines is legendary. The whole process can take 5 to 
10 years, adding to the cost and risk for investors. 

Finally, let me comment on the commercial risk. We are operating in a much 
more competitive and price sensitive health care climate. Purchasers of medicines 
are better organized and more powerful than they have ever been before. They are 
skeptical, they are tenacious and they are tough negotiators over price. If the Con- 
gress passes a comprehensive health care reform plan, the economic constraints in 
the marketplace will increase. 

The technology transfer process 

Let me now turn to the technology transfer process and the role of the bio- 
technology industry. The fundamental purpose of government technology transfer 
programs is to ensure that government investments in basic research lead to prod- 
ucts and services in the market place which improve the quality of the lives of 
human beings. 

The effective transfer of technology from government funded basic research to pri- 
vate firms which will commercialize it helps to justify the huge appropriations for 
basic research. The purpose of government basic research is not simply to provide 
employment for scientists and administrators or to advance the cutting edge of 
science. The purpose is also to conduct research that can improve our standard of 
living, improve our health and welfare, and improve the competitiveness of U.S. 
firms. The bottom Une in which these objectives are measured is in the market 
place, not just in the laboratory. 

Senators Tom Harkin and Mark Hatfield have introduced a proposal to establish 
a biomedical research fund for NIH. The bill would require that a portion of the pre- 
miums paid into a national health plan be allocated to fund basic research at NIH 
and its grantees. This proposal makes sense if and when these funds will generate 
commercial products that can improve the lives of patients. The proposal is, there- 
fore, dependent on effective transfer of the government's basic biomedical research 
to private firms which will develop products and take them through the FDA ap- 
proval process. Without an effective technology transfer program at NIH, the ration- 
ale for the Harkin-Hatfield legislation is diminished. 



■» Ernst & Young, Biotech 94 Long Term Value Short Term Hurdles, Eighth Annual Report on 
the Biotech Industry, VIII (1993). 

5 Ernst & Young, Biotech 94 Long Term Value Short Term Hurdles, Eighth Annual Report on 
the Biotech Industry 28-31 (1993). 



I 



94 

When basic biomedical technology is commercialized, not only do patients benefit 
but we all benefit from the economic growth and international competitiveness of 
the firms to which the technology is transferred. These firms create jobs, create 
value, and both the firm and its employees pay taxes which help to finance govern- 
ment programs, including basic research. 

The most common technology transfer agreements involve the licensing to a pri- 
vate firm of patent rights (or potential patent rights) secured by a government fund- 
ed research facility These agreements may typically require the private firm to pay 
some fees at the time the technology is transferred and then to pay royalties if and 
when the firm is able to develop a product for sale in the marketplace. The royalties 
are a percentage of the sales generated by the product. If the firm is not able to 
commercialize a product based upon the patent rights, no royalties are paid. Of 
course, the government receives additional tax payments from corporations and in- 
dividuals when technology is commercialized. 

The transfer of the technology to the private sector initiates a long and costly 
process by the recipient company to develop the technology and to evaluate its com- 
mercial potential. This process often requires years of mrther basic and applied 
work, and millions of dollars (in the case of a pharmaceutical), to arrive at a product 
candidate. Many millions of dollars more are then required to take the product can- 
didate through the regulatory approval process and oring it to market. Only then 
will the public stand to benefit from the initial investment of federal funds in the 
basic reseeirch project. Only then can the recipient company hope to recoup its ex- 
penses in developing the product. Most product candidates never make it to market, 
so a high degree of risk accompanies this process. 

The technology transfer process in America is a long, interlocking chain with 
many different links at different places. It is critical that we view the technology 
transfer process chain as a whole and recognize that each player, or link, is critical 
to the success of the whole. The strength of the U.S. system is acknowledged in Eu- 
rope where a European Commission has said, "It is hard to escape the conclusion 
that the U.S., rather than Europe, is now the main base for pharmaceutical R and 
D and for therapeutic innovation * * *." One chief factor cited by the Commission 
holding Europe back is a "fragmentation among universities and institutes which 
do not tend to collaborate across nationed lines and particularly for biotechnology." 

Regeneron typically enters into three different types of technology transfer agree- 
ments under Bayh-Dole. These agreements have been successful and are very im- 
portant to us. Most frequently, we enter into research collaboration agreements with 
academicians who want Regeneron scientific know how and materials for their re- 
search projects. In return for providing materials and scientific help, we seek to li- 
cense rights in any inventions which are generated. The University thus has a po- 
tential licensee to satisfy its Bayh-Dole obhgations, and we may have access to a 
new and useful discovery. Regeneron currently has agreements of this type vnth 329 
investigators all over the world. Of interest to the members of this Committee, I 
should mention that they include one from Alabama, 23 from California, two from 
Colorado, 15 from Massachusetts, one from Utah, and one from Vermont. (We are 
still hoping for collaborators in Arizona, Iowa, and Wyoming!) Regeneron provides 
proprietary substances to these investigators valued at $12,000-$ 120,000 per col- 
laborator, with an aggregate value in the millions of dollars. You can see that the 
technology transfer process goes in both directions — we transfer technology into fed- 
erally funded labs at essentially the same rate that we hope to transfer it out. 

In addition to collaboration agreements, we enter into license agreements or op- 
tion agreements with federally funded labs for early stage technology. Some of these 
technologies have included a protein factor from University of Iowa, receptors from 
Salk Institute in California, and a protein controlling neural development from Uni- 
versity of California, Berkeley. These are all license agreements under Bayh-Dole 
technology transfers. We also have a very small number of sponsored research 
agreements which include accompanying license rights, but we have limited funds 
for external research support. 

About the only type of technology transfer arrangement that we do not participate 
in are CRADAs with NIH intramural scientists. We have declined to participate in 
any CRADAs because we cannot risk the uncertainty engendered by the drug pric- 
ing clause inserted into NIH CRADAs, a point I will address further. 

You can see that technology transfer under Bayh-Dole has been very productive 
and successful for Regeneron and our external scientific collaborators, as it has for 
almost all biotechnology companies. We would like to thank Senators Bayh and Dole 
for the very positive impact their bill has had on the biotechnology industry. 

At its best, the technology transfer process as it applies to public institutions, pri- 
vate universities and foundations should be modeled on the commercial relation- 
ships among private corporations. It is clear that the more these government or gov- 



95 

ernment grantee technology transfer agreements resemble the agreements between 
private corporations, the more effective they will be in realizing the objectives of the 
government's investment in basic research. The appreciation of a government agen- 
cy of the economic and regulatory climate in which the biotechnology industry oper- 
ates will determine whether a technology transfer program of federally funded re- 
search will succeed or fail. 

Success of the Bayh-Dole Act 

The Bayh-Dole Act does, in fact, model the government's technology transfer 
agreements on those which we find among private corporations and this is the rea- 
son for its outstanding success. It takes the perspective of private corporations into 
account. It understands the special role we can play and the constraints under 
which we operate. It is the paradigm of enlightened government technology transfer 
programs which maximizes the value of the investment of the government in basic 
biomedical research. 

I would like to describe a technology transferred to Regeneron under Bayh-Dole 
from the University of California, Berkeley which we are very excited about. Profes- 
sor Richard Harland, a young investigator at UC Berkeley, cloned a gene which, 
when injected into frog embryos, caused the formation of very large heads. He 
named the protein noggin. Regeneron was intrigued by the potential of noggin to 
form neural tissue and perhaps to have use in treating degenerating neural tissue. 
After estabUshing a scientific basis for collaboration with Professor Harland, 
Regeneron entered into an option agreement under Bayh-Dole with UC Berkeley for 
noggin. In one month (a very short time to achieve this result), we cloned the 
human noggin gene, and began evaluating its potential as a drug. More than one 
year has now passed. We have devoted substantial scientific expertise and hundreds 
of thousands of dollars, and we know a lot more about noggin. We remain excited 
about it. However, we don't know yet how to use noggin as pharmaceutical to treat 
neurodegenerative disease. It may take several more years of intensive (and expen- 
sive) research at Regeneron to find the answer. When we do, we would expect to 
bring noggin to the market, and pay royalties to UC Berkeley. We consider this to 
be a technology transfer arrangement with great potential, illustrating the very es- 
sence of the intent of the Bayh-Dole Act. 

The success of conunercialization of technology transferred under the Bayh-Dole 
Act is thus due in large part to the huge investments by private biotechnology and 
pharmaceutical companies in basic and applied research. The U.S. has the most 
competitive and successful biopharmaceutical industry in the world with an unsur- 
passed ability to commerciahze basic research. Let me emphasize that government 
funded basic research, while it is an important source of technology, is not the only 
source for such technology or even the principal source of such technology. The prin- 
cipal source of technology for Regeneron is Regeneron scientists, who are funded en- 
tirely by the private sector. 

My basic point, however, is that every player in the technology commercialization 
process needs to play its appropriate role for the process to succeed in developing 
commercial products for the public good. 

Threat to the Bayh-Dole Act 

A fundamental threat to the Bayh-Dole Act is under discussion. This threat not 
only has the potential for undermining the effectiveness of this law, it actually has 
the potential to undermine the effectiveness of all government technology transfer 
and Dusiness support programs. 

The threat comes from the conflict between the fundamental purpose of govern- 
ment technology transfer programs and the practice of one agency, the National In- 
stitutes of Health. Alone among the Federal agencies with technology transfer pro- 
grams, NIH has, as a matter of administrative discretion, included in its technology 
transfer agreements certain terms which give NIH the contractual right to specify 
the price for any product of the firm which is developed from the transferred tech- 
nology. This pricing clause now applies only to CRADAs relating to the intramural 
(Bethesda) and not the extramural (university and foundation) research programs 
funded by NIH. No statute requires that NIH involve itself in pricing products 
which are eventually commercialized as a result of work done through a CRADA. 
Many argue that this NIH practice is contrary to NIH's statutory authorization. 

Unfortunately, the threat from this discretionary NIH program may soon be 
compounded. BIO understands that legislation may shortly be introduced which 
would institutionaUze the counter-productive technology transfer practices of the 
NIH. 

The further risk with this legislation is not only that it would prevent NIH from 
reforming its current practices, which many at NIH are eager to do, but that it 



96 

would establish a dangerous precedent that could well be applied with disastrous 
results to all extramural technology transfer programs and other federally funded 
programs. The risk of this legislation to federally funded technology transfer pro- 
grams is not theoretical or speculative. We know the risk is real because we have 
direct experience, and this has deterred Regeneron from participating in any 
CRADAs. 

The NIH price review process is undermining technology transfer for one simple 
reason: there is no way for a private firm to evaluate the impact of the drug pricing 
clauses on the potential for commercial development of a product. As a result an 
increasing numoer of biotechnology and pharmaceutical companies, particularly 
large companies which have ample resources and scientific capacity to fund their 
own research and develop their own technology, now refuse to enter into CRADAs 
with NIH. 

The issue is not whether private companies are willing to share the economic ben- 
efits of transferred technology with the government. We are willing to pay reason- 
able fees and royalties. With a royalty requirement a private company can take 
these costs into account as it develops a product. This is standard practice when one 

Erivate company is licensing technology from another. Royalty requirements work 
ecause firms can predict what they will cost and how they will affect their poten- 
tial for commercial success with the product. 

Many independent studies have found that the NIH discretionary price review 
process is crippling the technology transfer process at NIH. 

• The NIH insistence on price controls has "nearly ruined the system," said Dr. 
Steven Paul, the former scientific director of the National Institute of Mental 
Health and a creator of the NIH technology transfer program. Cited by Dr. Rob- 
ert Goldberg in "Race Against the Cure: The Health Hazards of Pharmaceutical 
Price Controls," Policy Review, Spring 1994 (number 68) at 34. 

• A recent report by the HHS Inspector General noted that the controversy at 
NIH over CRADA pricing threatens support for the program (Office of Inspector 
General, Dept. of HHS, Technology Transfer and the Public Interest: Cooperative 
Research and Development Agreements at NIH (OEI-92-01100) (Nov. 93)). This 
report finds that the use of an arbitrary and unpredictable "reasonable price 
clause" is undermining the transfer of NIH patents to private companies. Many 
private biomedical research companies now refuse to participate in CRADAs. 
This fact undermines the rationale for appropriating so many billions of dollars 
to fund this basic research. The impact of these price controls has been star- 
tling. 1993 was the worst year for new CRADAs in the history of the program. 
Moreover, most of these new CRADAs do not involve drug development, a trend 
that results from the application of the pricing clause. 

• Dr. Bruce Chabner, Director of the National Cancer Institutes (NCI) Division 
of Cancer Treatment, in testimony at a congressional hearing last year dis- 
cussed specific instances in which companies have discontinued projects or sus- 
pended CRADA negotiations because of concerns raised by the "reasonable pric- 
ing clause." Chabner noted that "Other companies have simply refused to be- 
come involved with the NCI in early drug development * * *. NCI has no doubt 
that companies will not accept the risks of investing large sums in the develop- 
ment of a government product if their freedom to realize a profit is restricted. 
These companies are not willing to put their corporate fate in the hands of a 
government-appointed committee of experts. There are less risky ways for com- 
panies to make a profit." Testimony of Dr. Bruce Chabner. Director of the Divi- 
sion of Cancer Treatment. National Center Institute before the House Sub- 
committee on Regulation. Business Opportunities and Energy of the House Com- 
mittee on Small Business (Jan. 25, 1993). 

• The Committee to Study Medication Development at the National Institute on 
Drug Abuse states that the "reasonable-pricing clause required in (DHHS 
CRADAs) in the last year has been identified by NIDA as a major deterrent to 
attracting private-sector partnerships * * *." The Committee "recommends a 
change in the reasonable pricing provisions of DHHS CRADAs so that licensees 
or manufacturers of medications know explicitly the ultimate pricing or pricing 
structure for their potential therapeutic agent." It found that the number of 
CRADAs established by NIH had dropped from 126 in 1992 to about 26 in 1993. 
Development of Anti- Addiction Medications: Issues for the Government and Pri- 
vate Sector, Institutes of Medicine, 1994. 

• A recent article cites NIH officials attributing the price control clause for the 
precipitous decline in CRADAs. "Many pharmaceutical companies are reconsid- 
ering CRADAs, and NIH officials say four of the largest * * * have told NIH 
that they plan to forego new CRADAs unless the pricing clause is removed." 



97 

Christopher Anderson, "Rocky Road for Federal Research Inc.", Science, 497 
(October 22, 1993). 
• The Cancer Letter has recently published a draft "Action Plan on Breast Can- 
cer" developed from a recent NIH conference convened by Secretary Donna 
Shalala which recommends "increase(d) efforts to speed the translation of basic 
research into clinical applications" and "review of the reasonable pricing clause 
in relation to CRADAs, as they impact of the flow of industrial funds into clini- 
cal research and, thus, affect collaborations." Cancer Letter, March 25, 1994. 

The NIH discretionary price control clause in CRADAs is undermining the trans- 
fer of this government developed technology. It is also clear that such a mechanism 
would undermine every government program to which it might be applied. 

No one in the biotechnology industry is arguing that private biopharmaceutical 
companies should be permitted to charge unreasonable prices for their products. We 
do not charge unreasonable prices for our products now, which is demonstrated by 
the fat that the prices for biotechnology products tend to be higher, not lower, out- 
side the U.S. 

A 1992 study by the investment bank Robertson Stephens and Company compares 
international prices for the leading biotech drugs in the U.S. and Japan. It shows 
that the prices of these drugs tends to be much higher in Japan (which sets drug 
prices) than in the U.S., often three times as high. For example. Human Growth 
Hormone is priced at $14 in the U.S. and $53 in Japan.; G-CSF is priced at $112 
in the U.S. and $375 in Japan; EPO is priced at $40 in the U.S. and $99 in Japan 
and Alpha Interferon is priced at $8.75 in the U.S. and $25 in Japan. Japan adopted 
this pricing policy because it prizes innovation and wants to develop a biotech indus- 
try that can compete with ours. 

Companies that develop breakthrough drugs often feel pressures as soon as they 
reach the market place. The real period of exclusivity in the market is likely to be 
2-4 years, not the 17 years of a patent. It is remarkable how quickly other compa- 
nies will develop competing drugs. A company certainly cannot charge a price that 
consumers or their insurers cannot or are unwilling to pay, and HMO's are very 
tough bargainers with any supplier of medical products. In addition to direct market 
pressure, companies also are sensitive to public controversy, criticism from Congress 
and the Administration, Congressional oversight hearings, and other types of pro- 
tests. They all have an impact on pricing decisions. They are part of the "market" 
that determines drug and all other prices in our economy. 

Instead of attempting to set prices, NIH should aggressively license its technology 
in exchange for upfront cash pajonents and/or royalties on sales. The precise 
amounts of these payments or royalties should be determined by negotiation be- 
tween the parties and could vary, based on (among other things) the stage at which 
the technology is transferred. Innovative payment and royalty agreements could be 
developed. /^ effective NIH royalty process could generate hundreds of millions of 
dollars in royalties. These royalty payments could be made into a Harkin-Hatfield- 
type of biomedical research trust to fund more basic research. 

The worst possible scenario is for the government to continue its basic research, 
or to expand it with the help of the Harkin-Hatfield trust fund, and then refuse to 
license its technology on terms that will ensure that it will be commercialized. Ev- 
eryone loses with this approach, including taxpayers who fund the research, citizens 
who might benefit from the products, firms which could hire employees and pay 
taxes, and the United States for decreased competitiveness. 

The biotechnology industry is willing to compete in a competitive health care mar- 
ket. We are confident that our products will be found in that marketplace to be both 
medically effective and cost effective. How that market is structured is an issue to 
be determined in the health care reform debate, not by NIH on an ad hoc basis in 
revievdng the prices of the medicines that are developed based on transferred tech- 
nology. That review will have one impact on the cost of medicines; it will ensure 
that medicines based on NIH technology are not brought to market where pricing 
issues could be aired. 

Price review burns the village to "save" it. 

Precedent set by NIH price controls 

The NIH price control concept is apparently premised on the following argument: 
a private entity which receives any government assistance in connection with any 
phase of the development of a commercial product should not be free to set the 
prices for that product in the marketplace. 

If this is the concept, then there is no clear rationale for why price controls would 
not apply to all licenses of NIH grantees, including private universities and founda- 
tions. The NIH price control mechanism does not yet apply to the licenses of univer- 



98 

sities and foundations which have received NIH grants despite the fact that these 
Ucenses may be entirely based on the funding provided by the grants. 

There is also no clear rationale why pricecontrols should not be imposed on 
CRADAs of other government agencies, including the Department of Energy, grant- 
ees of the National Science Foundation, grantees of the Advanced Technology Pro- 
gram, recipients of SBIR awards, and borrowers of government guaranteed or sub- 
sidized loans. . 

There is no principle that would provide a basis to not include price controls in 
every Federal program. Would price controls be imposed on any private company 
which claims a research and development tax credit, receives a patent or cooyright 
or transports products on government constructed interstate highways? Any legisla- 
tion which confirms or extends the NIH price control scheme will set a potentially 
dangerous precedent for all government technology transfer and business assistance 

programs. ,.,.,. 

Let me be clear. If the NIH drug pricing clauses are confirmed in legislation, even 
if the law applies only to NIH's intramural technology transfer program, every 
grantee of NIH is in jeopardy. There is a very slippery slope here. There is no bright 
line to distinguish direct and indirect NIH technology transfer, no political principle, 
and no guarantee. It is in the direct interest of every university and foundation 
grantee of the NIH to oppose any legislation to enshrine the NIH reasonable price" 
clause and in the interest of every other transferee of government technology to op- 
pose it as well. 

S. 1537 and NIH CRADAs 

Our industry supports the goals of S. 1537, the Technology CommerciaUzation Act 
of 1993, introduced by the Chairman of this Subcommittee, Senator DeConcini and 
Senator Rockefeller. We believe it would enhance the competitiveness of the U.S. 
biotech industry. The bill would ensure that the ownership of any invention or other 
intellectual property developed under a CRADA belongs to the company or compa- 
nies which develop it. We appreciate that the bill focuses on the vital role which 
private businesses play in commercializing government funded basic research. 

We especially appreciate the emphasis in the legislation on the Government lab- 
oratory receiving ^reasonable compensation" for the technology that is transferred. 
The BIO member companies are wiUing to negotiate royalties or other arrangements 
with the Government when they license and then commercialize intellectual prop- 
erty transferred by the Government. 

We believe that S. 1537, if enacted into law, should be interpreted to assume that 
NIH will receive "reasonable compensation." There is no need to go further. Indeed, 
the legislation should clearly provide that further regulation like the "reasonable 
price" clause is inconsistent with the purpose and effectiveness of technology trans- 
fer and not authorized. I am confident that BIO would strongly support the legisla- 
tion if that is how it is interpreted. 
Competitiveness of Biotechnology Industry 

The technology transfer issues here are not just important for government agen- 
cies and patients. The United States currently has the dominant biotechnology re- 
search and commercial capabilities when compared with any other country in the 
world The success of the Bayh-Dole Act is one of the reasons for this dominance. 
Any policies which undermine it or confirm the counter-productive NIH price pre- 
view policy will adversely affect the competitiveness of the biotechnology industry. 

American researchers developed much of the basic science of the ne\v bio- 
technology, and the United States continues to lead the world in the commerciahza- 
tion of most emerging biotechnology products. Precisely because the U.S. is^ pre- 
eminent in the field of biotechnology, it has become a target of other country s in- 
dustrial policies. ^^.. ^ , ., X A i. 1- 13 1 

In 1991 the Office of Technology Assessment (OTA) found that Australia, Brazil, 
Denmark,' France, South Korea and Taiwan (Republic of China) all had targeted bio- 
technology as an enabling technology. Furthermore, in 1984, the OTA identified 
Japan as the major potential competitor to the United States in biotechnology com- 

The OTA identified the manner in which Japan had targeted biotechnology. Its 
report stated: 

In 1981, the Ministry of International Trade and Industry (MITI) des- 
ignated biotechnology to be a strategic area of science research, marking 
the first official pronouncement encouraging the industrial development of 






6 U.S. Congress, Office of Technology Assessment, Biotechnology in a Global Economy 243 (Oc- 
tober 1991). 



99 

biotechnology in Japan. Over the next few years, several ministries under- 
took programs to fund and support biotechnology. 

The Japanese Ministry of Health and Welfare instituted a poUcy whereby existing 
drugs would have their prices lowered, while allowing premium prices for innovative 
or important new drugs, thus forcing companies to be innovative and to seek larger 

It is widely recognized that the biotechnology industry can make a substantial 
contribution to U.S. economic growth and improved quality of life. For example: 

• The National Critical Technologies Panel, established in 1989 within the White 
House Office of Science and Technology Policy by an Act of Congress,^ calls bio- 
technology a "national critical technology" that is "essential for the United 
States to develop to further the long-term national security and economic pros- 
perity of the United States." 9 

• The private sector Council on Competitiveness also calls biotechnology one of 
several "critical technologies" that will drive U.S. productivity, economic growth, 
and competitiveness over the next ten years and perhaps over the next cen- 
tury, lo 

• The United States Congress Office of Technology Assessment calls bio- 
technology "a strategic industry with great potential for heightening U.S. inter- 
national economic competitiveness." OTA also observed that "the wide-reaching 
potential applications of biotechnology He close to the center of many of the 
world's major problems — malnutrition, disease, energy availability and cost, and 
pollution. Biotechnology can change both the way we Uve and the industrial 
community of the 21st century." n 

• The National Academy of Engineering characterizes genetic engineering as one 
of the ten outstanding engineering achievements in the past quarter century. 12 

• Lester Thurow and Robert Reich have recommended policies that shift invest- 
ment and resources away from declining segments of manufacturing and into 
services and emerging industries such as biotechnology and computers. i3 

The importance of the biotechnology industry to America's competitiveness war- 
rants development of a comprehensive biotechnology strategy that takes into ac- 
count the incfustry's strengths, weaknesses and needs. 

CONCLUSION 

In conclusion, let me praise Senators Bayh and Dole for their foresight and crafts- 
manship on technology transfer poUcies, urge Congress to reject any new legislation 
which will undermine the effectiveness of this landmark legislation, and urge this 
Subcommittee and the NIH to review the current price review pohcies. The Amer- 
ican public and the U.S. biotechnology industry have a vital stake in these issues 
and BIO will work with anyone who will further these aims. 

Thank you very much for inviting me to testify here today, and I am happy to 
attempt to answer your questions. 

Senator DeConcini. Thank you. 
Dr. Vest? 

STATEMENT OF CHARLES M. VEST, PRESIDENT, MASSACHU- 
SETTS INSTITUTE OF TECHNOLOGY, CAMBRIDGE, MA 

Mr. Vest. Mr. Chairman, I am very pleased to have the oppor- 
tunity to summarize briefly for you MIT's experiences with tech- 
nology transfer under the Bayh-Dole Act. 



■7 U.S. Congress, Office of Technology Assessment, Biotechnology in a Global Economy 244-245 
(October 1991). „ ,„.„..„ 

sNational Competitiveness Technology Transfer Act, Pub. L. No. 101-189, 103 Stat. 1352 (42 
U.S.C. §6681 et seq.). , ^ . , ^ ^ 

sWhite House Office of Science and Technology Policy, Report of the National Critical Tech- 
nologies Panel 7 (1991). 

10 Council on Competitiveness, Gaining New Ground: Technology Priorities for America s Fu- 
ture 6 (1991). 

iiU.S. Congress, Office of Technology Assessment. New Developments in Biotechnology; U.S. 
Investment in Biotechnology-Special Report 27 (July 1988). 

12 National Academy of Engineering, Engineering and the Advancement of Human Welfare: 10 
Outstanding Achievements 1964-1989 2 ( 1989). 

isChoate, Pat, The High Flex Society— Shaping America's Economic Future 169 (1986). 



100 

As you know, this act was intended to promote commercialization 
and use by industry of inventions arising from federally-sponsored 
research. One of its key provisions was allowing universities to re- 
tain the rights to intellectual properties they developed under Fed- 
eral funding. 

In our experience, the Bayh-Dole Act has been remarkably effec- 
tive in meeting three objectives: first, encouraging researchers to 
identify the commercial potential of inventions arising from feder- 
ally-funded research; second, providing the means and incentives 
for industry to invest in these early, and therefore high-risk inven- 
tions; and third, promoting collaboration between industry and aca- 
demia partnerships that have resulted in the creation of new in- 
dustries, companies, and jobs based on new technologies. 

As you may know, MIT has been particularly active in the field 
of technology transfer. Since I know my own institution best, I 
would like to cite it as a case in point. 

Last year, MIT filed patents for over 150 new inventions and a 
total of over 250 U.S. patents. We were granted 106 U.S. patents 
and we signed over 75 licensing agreements covering for almost 
100 inventions. 

These activities were guided by the goals of the Bayh-Dole Act 
to enhance U.S. industry and competitiveness. Over 95 percent of 
our licenses are to U.S. companies. We now have over 350 active 
license agreements in our portfolio, each one requiring the licensee 
to invest in the development of our inventions. 

I should note that virtually all university licenses contain new 
diligence requirements that ensure commercial development of the 
licensed invention. We take very seriously our responsibility to see 
that our licensees are indeed putting our inventions to good use. 

Another goal of the Bayh-Dole Act was to minimize the cost to 
the Government of administering its technology transfer policies. 
Over the past decade or so many universities have helped to 
achieve this goal by developing a cadre of technology transfer and 
intellectual property experts who, because they speak the lan- 
guages of both academia and industry, are quite good at facilitating 
our interactions. And because of this, they are very skilled at mov- 
ing the inventions from the laboratory, so to speak, to the assembly 
line. 

The assembly line may be one that already exists, or it may and 
often does take the form of the creation of new companies. For ex- 
ample, over 50 new companies have been started through MIT li- 
censes since we reorganized our technology licensing office in 1986. 

I really cannot overemphasize the importance of this last point. 
The number of companies is one thing, but the number of jobs gen- 
erated by companies is another. These new spin-off companies have 
created more than 2,000 jobs over the past 8 years, this during one 
of the worst periods of the Massachusetts economy in recent times. 
That, Mr. Chairman, in my view is what technology transfer must 
ultimately be about. 

Another point is that the 50 or so recent spin-off companies have 
a market capitalization exceeding $2.5 billion, yet they were cre- 
ated with cumulative venture investments of less than $100 mil- 
lion, true amplification in technology transfer. 



101 

So far I have talked to the benefits of the Bayh-Dole Act to the 
larger economy, but I would like to say just a word or two about 
the benefits to us as research universities. 

We do receive some modest royalty income. We appreciate every 
bit of it, particularly since these funds can be used in a very flexi- 
ble way to support scholarships for students and salaries for fac- 
ulty. 

The primary benefit to the university, however, I believe takes 
other forms. These include the creation of an entrepreneurial fer- 
ment on our campuses. Faculty consider the practical implications 
of their research. Students think about starting companies. Alumni 
visit us looking for new opportunities to combine their business ex- 
perience with MIT technology. Industrial colleagues meet on our 
campus with faculty every day. Many venture capitalists see us as 
a must-stop. 

Research support from industry has increased during this period. 
Our technology transfer interactions have increased the opportuni- 
ties for graduate student employment and for faculty consulting in 
industry. Our interactions with industry bring real-world tech- 
nology in management issues into our own laboratories and into 
our classrooms. They keep us current, grounded, and forward-look- 
ing. 

Most important, though, the Bayh-Dole Act has helped us to ful- 
fill our goal of working with industry to develop technology for the 
public good while still maintaining an academic atmosphere condu- 
cive to long-term research, open discussion and publication of our 
findings, and to the very best in education. 

In short, Mr. Chairman, MIT's experience with the Bayh-Dole 
Act affirms the wisdom of the policy that it has codified and the 
need to sustain it. 

Thank you very much. 

[Mr. Vest submitted the following:] 

Prepared Statement of Charles M. Vest 

introduction 

Mr. Chairman, distinguished members of the Committee, I am Charles Vest, 
president of the Massachusetts Institute of Technology. I am very pleased to have 
this opportunity to speak with you about the success of technology transfer under 
the Bayh-Dole Act. 

As you know, the Act was intended to promote the commercialization and use by 
industry of inventions arising from federally sponsored research. One of its key pro- 
visions was allowing universities to retain the rights to the intellectual property 
they developed with federal funds. Prior to 1980, patents resulting from such re- 
search were owned by the government, but relatively few were being licensed. (By 
1978, the government held 28,000 patents, of which only 5 percent had been li- 
censed.) In short, the fruits of academic research were not being used by industry. 

In our experience, the Bayh-Dole Act has been remarkably effective in meeting 
its objectives of: 

• encouraging researchers to identify the commercial potential of inventions aris- 
ing from federally funded research; 

• providing the means and incentives for industry to invest in these early and 
therefore high-risk inventions; and 

• promoting collaboration between industry and academia — partnerships that 
have resulted in the creation of new industries, companies and jobs based on 
these new technologies. 



102 

A CASE IN POINT: TECHNOLOGY TRANSFER FROM MIT 

Let me give you some evidence of success: 

A recent national survey reported that 2,700 patents were filed by American uni- 
versities and research institutions in 1992, and over 1,500 licenses were granted. 
As you may know, MIT has been particularly active in the field of technology trans- 
fer, and since I know my own institution best, let me use it as a case in point. 

Last year: 

• MIT filed over 150 patents on new inventions (and a total of over 250 US pat- 
ents), 

• we were granted 106 US patents, and 

• we signed over 75 licensing agreements, for almost 100 inventions. 

These activities are guided by the goals of the Bayh-Dole Act to enhance US in- 
dustry and competitiveness. 

Over 95 percent of our licenses are to US companies. The mandated preference 
for US industry has not been a handicap in our technology transfer efforts. In fact, 
it has worked to our advantage. It has increased public support for the technology 
transfer mission and has helped to concentrate our efforts close to home, thus facili- 
tating interaction between companies and faculty inventors, something that is es- 
sential in the development of early stage technology. 

We now have over 350 active license agreements in our portfolio — each one requir- 
ing the licensee to invest in the development of the inventions. Our estimate is that 
for every dollar a company invests in licensing fees to MIT, it invests another 50 
to 100 dollars in developing the technology. 

I should note that virtually all university licenses contain diligence requirements 
that ensure commercial development of the licensed invention, and we take seri- 
ously our responsibility to see that our licensees are indeed putting our inventions 
to good use. 

Another goal of the Bayh-Dole Act was to minimize the cost to the government 
of administering its technology transfer policies. Over the past decade or so, many 
universities have helped to achieve this goal by developing a cadre of technology 
transfer and intellectual property experts who, because they speak the language of 
both academia and industry, are very good at facilitating our interactions. These 
professionals are able to accommodate the needs of industry while helping to pre- 
serve the special policies, objectives, and long-range view that are characteristic of 
the academic world. And because of this, they are very skilled at moving inventions 
from the laboratory to the assembly line. 

The "assembly line" may be one that already exists, or it may (and often does) 
take the form of new company creation. For example, over 50 new companies have 
been started through MIT licenses since we reorganized our Technology Licensing 
Office in 1986. 

I cannot overemphasize the importance of this latter point. The number of compa- 
nies is one thing. The number of jobs generated by new companies is another. These 
new spin-off companies created more than 2,000 jobs over the past eight years — this, 
during one of the worst periods of the Massachusetts economy in recent years. That 
is technology transfer. 

(Over the years, MIT faculty and graduates have founded over 800 companies in 
Massachusetts and California alone — which in turn have generated over 450,000 
jobs in direct employment or through the economic impact of these companies.) 

Another point: The 50 or so recent spin-off companies have a market capitaliza- 
tion greater than $2.5 billion, yet they were created with cumulative venture invest- 
ments of less than $ 100 million. And that is technology transfer. 

BENEFITS TO THE UNIVERSITIES 

So far, I have talked of the benefits of the Bayh-Dole Act to the larger economy, 
but I would like to say just a word about the benefits to the research universities. 

• We do receive some modest royalty income, and we appreciate every bit — par- 
ticularly since these are funds that can be used to support scholarships for stu- 
dents and salaries for professors. Over the past five years, at MIT, net royalty 
income has averaged less than one-half of one percent of our total budget. 

The primary benefits to the universities, however, take other forms. They include: 

• An entrepreneurial ferment on campus. Faculty consider the practical implica- 
tions of their research. Students think about starting companies. Alumni and 
alumnae visit us to look for opportunities to combine their business experience 



I 



103 

with MIT's technology. Industrial colleagues meet with faculty every day. And 
venture capitalists see us as a "must stop." 

• Research support from industry has increased. We frequently combine a license 
to a federally funded invention with a sponsored research contract for further 
development of that invention. (In fiscal year 1993, MIT received $62 million 
in research support from industry; this was just over 17 percent of our campus 
research budget.) 

• Our technology transfer interactions have increased the opportunities for grad- 
uate student employment and for faculty consulting in industry. 

• Our interactions with industry bring real-world technology and management is- 
sues into our research laboratories and into our curricula. They keep us current, 
grounded, and forward-looking. 

Most important, though, the Bayh-Dole Act has helped us to fulfill our goal of 
working with industry to develop technology for the public good, while still main- 
taining an academic atmosphere conducive to long-term research, open discussion 
and publication of our findings, and the best in education. 

CONCLUSION 

MIT's experience with the Bayh-Dole Act affirms the wisdom of the policy and the 
need to sustain it. The policy works. 



Massachusetts Institute of Technology, 

Office of the President, 

May 23, 1994. 

Hon. Dennis DeConcini, 

Subcommittee on Patents, Copyrights and Trademarks, 

U.S. Senate, Washington, DC. 

Dear Senator DeConcini: Dr. Charles M. Vest, president of the Massachusetts 
Institute of Technology testified before the Subcommittee on Patents, Copyrights, 
and Trademarks on April 19, 1994. He has requested that the attached information 
be included in the record for the hearing, "The Bayh-Dole Act: A Review of Patent 
Issues in Federally Funded Research." Dr. Vest appreciates the opportunity to pro- 
vide your Subcommittee with this information. 

Sincerely yours, 

Laura B. Mersky, 
Administrative Assistant to the President. 



The Bayh-Dole Act 

international considerations of patent issues in federally funded research 

IN universities 

The need for international involvement 

The scientific community has learned that the most rapid progress is made when 
even preliminary research results are widely shared as quickly as possible. For ex- 
ample, the discovery of the basic techniques of genetic engineering led to a world- 
wide flurry of activity in universities and industry. As a result steady progress has 
been made in the underlying science and industry is now beginning to realize its 
considerable commercial potential. 

A central goal of universities is to encourage access to knowledge. Faculty and 
students must be able to share their work with the rest of the international re- 
search community, because such cooperation is a crucial part of the testing and 
evaluation which leads to progress in basic research. No insight or research funding 
is considered vaUd until it has been published in one or more of the thousands of 
international technical or scientific journals. In addition to providing a formad mode 
of communication and record of a researcher's progress and achievements, publica- 
tion allows others working in the field to challenge, verify, or build upon the find- 
ings presented. 

International outreach is essential for our universities if they are to maintain 
their excellence in research and education and if they are to prepare students ade- 
quately for the challenges they will face in an increasingly international world soci- 
ety. 



104 

Patenting and licensing considerations 

Although the vast majority of basic research results do not lead to patents, occa- 
sionally university results do lead to an idea which is suitable for protection as a 
patentable invention. MIT is one of the more active universities in this area. In 
1993, for example, MIT scientists and engineers had 345 invention disclosures, the 
Institute filed 226 patent applications in the U.S., received 125 patents from earlier 
applications, and made 71 new licensing agreements and 12 option agreements. At 
MIT, this work is carried out by the university's Technology Licensing Office. 

The MIT Technology Licensing Office has been very successful in making sure 
that MIT patents bring benefit to American Taxpayers. Going beyond the require- 
ments of the Bayh-Dole Act, MIT requires that if a product using an MIT patent 
(even if developed without federal support) is to be sold in the U.S., substantial 
manufacturing must take place in our country. 

At the end of 1993, MIT had 417 active licensing agreements. There were 42 li- 
censes to foreign owned firms, and only 6 of the foreign licenses were exclusive. 
Over 95 percent of exclusive licenses of MIT patents were to U.S. firms. Thus MIT 
licenses overwhelmingly to firms owned and based in the U.S. 

MIT's Technology Licensing Office has carried its role even further, helping to es- 
tablish over 50 new companies since 1988. These companies employ more than 2,000 
people and have a market capitalization greater than $2.5 billion; they were created 
with a cumulative venture capital investment of about $100 million. 

Senator DeConcini. Thank you very much. 
Dr. Munsinger? 

STATEMENT OF GARY MUNSINGER, PRESIDENT, RESEARCH 
CORPORATION TECHNOLOGY, TUCSON, AZ 

Mr. Munsinger. Mr. Chairman, I am president of Research Cor- 
poration Technology, we would like to think the largest and most 
successful independent technology transfer organization in the 
world. We are certainly the largest in the United States, based 
upon the amount of revenue we are able to distribute back to the 
universities and their inventors. 

We came into existence in 1987, having acquired the technology 
transfer program of Research Corporation, which was formed in 
1912, and was the first independent technology transfer organiza- 
tion that we know of in the world. 

Since the Bayh-Dole Act was passed, we have observed — and our 
predecessor organization observed — tremendous growth in the 
awareness on the part of university campuses regarding the impor- 
tance of recognizing, identifying, examining the commercial poten- 
tial of, and protecting and commercializing inventions. You have 
heard from Howard and others that the growth and the number of 
inventions disclosed post Bayh-Dole versus pre Bayh-Dole. You 
have. heard of the growth in the number of patents issued through 
universities pre Bayh-Dole and post Bayh-Dole. 

Howard a moment ago pointed out the reason for the success and 
why Bayh-Dole was good policy. It had the effect of fixing authority 
and responsibility for technology transfer precisely at the right 
place, where the research is performed and where the discoveries 
are made. 

You have also heard that it has increased interaction between 
the universities and industry and has increased industrial support 
for R&D. In 1980, industrial sources made up about 3.9 percent of 
all support for academic R&D. In 1993, it had grown to 7.3 percent, 
a clear indication of the increased interaction with industry in sup- 
porting both basic research and applied research on university 
campuses. 



I 



105 

Something about our own history to show what has happened 
with technology transfer, pre and post Bayh-Dole — in 1983, our 
predecessor, RC, distributed $5.8 milHon in 1993 dollars to institu- 
tions and their inventors. In 1993, we distributed $35.8 million to 
institutions and their inventors, a tremendous increase. In the 13- 
year period, 1968 through 1980, our predecessor distributed a total 
of $30.9 million in 1993 dollars back to the institutions and their 
inventors on the basis of the royalties earned on their inventions. 
Between 1981 and 1993, that total was $219 million. 

Here you have a 13-year period pre Bayh-Dole of $31 million dis- 
tributed and in 1993 — in the same dollars, 1993 dollars — we dis- 
tributed almost $36 million. I think that is testimony regarding the 
effectiveness of this policy, which was good policy. Any change, Mr. 
Chairman, that you make in Bayh-Dole should be carefully consid- 
ered so that it doesn't add complexity to the process of technology 
transfer, which is a difficult one. It is difficult to cause firms to 
make the large commitment of resources necessary to bring an 
early stage technology through the entire developmental process 
and into the public use. 

Thank you very much. I would be happy to respond to any ques- 
tions. 

[The prepared statement of Mr. Munsinger follows:] 

Prepared Statement of Gary M. Munsinger, Ph.D., on Behalf of the 
Research Corporation Technologies, Inc. 

summary 

Research Corporation Technologies is generally recognized as the most successful 
of the companies that manage the commercialization of new technologies developed 
at universities and other nonprofit research centers in the United States and Can- 
ada. 

Transfer of university-based inventions has experienced tremendous growth since 
1980. The Bayh-Dole Act set in motion a series of events throughout the academic 
research community that focused attention on the importance of identifying, protect- 
ing, and commercializing discoveries growing out of research. 

By placing responsibility for technology transfer in the hands of the institutions 
where the research is performed and the discoveries are made, Bayh-Dole encour- 
aged universities to adopt and implement policies, procedures, and practices that 
have significantly enhanced the technology transfer process. Within universities 
there is now greater awareness regarding the need to recognize and disclose discov- 
eries. 

University interactions with industry have been greatly enhanced. Industrial sup- 
port of academic research grew rapidly between 1980, when it represented 3.9 per- 
cent of total funding, to 1993, when it is estimated to represent 7.3 percent. 

RCT's experience reflects the heightened awareness regarding the importance of 
identifjring, protecting and exploiting discoveries growing out of university research 

Erograms. It is recognized, however, that the development of products ana processes 
ased on early-stage technologies is an expensive, high-risk undertaking. WTiile RCT 
believes the U.S. will maintain its leadership position in the manufacture of tech- 
nology-intensive products, any action that would weaken Bayh-Dole would discour- 
age innovation and disadvantage U.S.-based enterprises in the increasingly competi- 
tive global economy. 

Members of the subcommittee are encouraged to consider carefully any changes 
in the Bayh-Dole Act and to reject those that would further complicate or introduce 
additional uncerteunty to the technology transfer process. 



Mr. Chairman and members of the subcommittee, my name is Gary M. Munsinger 
and I am President of Research Corporation Technologies (RCT), a technology man- 
agement organization having its principal corporate office in Tucson, Arizona. RCT 
is a not-for-profit, tax-paying corporation formed in 1987 to acquire and extend the 
technology transfer program of Research Corporation. 



106 



Research Corporation is a foundation formed in 1912 to commercialize inventions f 

made at universities and other nonprofit research laboratories and to support the 
development of academic science. Research Corporation was the first organization 
formed to facihtate the commercialization of inventions made at acadeniic and other 
research enterprises and continued to be the predominant organization into the 
1970's, when universities began to establish their own technology transfer programs 
and when other independent for-profit and nonprofit organizations began to be cre- 
ated. Research Corporation now maintains active programs designed to advance 
academic science at colleges and universities throughout the United States. 

Based on annual revenues generated by management of technologies originating 
at universities, medical research organizations, and other research centers, and cer- 
tainly on the basis of the amounts paid annually to these inventive sources, RCT 
is generally recognized as the world's largest and most successful independent tech- 
nology management company. The closest rival would be the British Technology 
Group (BTG), which was an entity of the British government prior to privatization 
in 1992. BTG operates mainly in the United Kingdom, but also has a presence in 
this country. 

I am here today in support of the Bayh-Dole Act and to explain, from the perspec- 
tive of RCT, why we beheve it has met the objectives of its sponsors and supporters, 
including many members of the subcommittee, and most especially the Chairman 
and the ranking member. 

The Bayh-Dole Act set in motion a series of events throughout the acadenuc re- 
search community that focused attention on the importance of adopting and imple- 
menting policies and establishing internal mechanisms designed to identify, protect, 
and exploit inventions having commercial potential. Attentiveness to such endeavors 
grew steadily over the last decade. This resulted, of course, from the decision to per- 
mit institutions to retain title to inventions developed through government funding. 
This policy had the effect of fixing authority and responsibility for the transfer of 
inventions at the appropriate level— with the organizational entity where research 
is actually performed and inventions are made — not just for products of government 
funded research, but for all research products. 

Institutional responsibihty for examining and exploiting the commercial potential 
of intellectual property greatly simplified the technology transfer process by reduc- 
ing uncertainty about the nature and extent of rights that commercial entities could 
acquire to intellectual property produced at the institution. 

Within universities themselves there is now much greater awareness among fac- 
ulty and other investigators regarding the importance of recognizing and disclosing 
inventions than there was in 1980. This awareness has grown steadily over the 
years. While the conversionof research results into products or processes having 
commercial value is not as important as traditional methods for transferring the re- 
sults of research (e.g., the education of students and publication of scholarly papers), 
it has gained acceptance as a legitimate and desirable activity on most campuses. 
Furthermore, it has been demonstrated that programs for assessing and protecting 
the commercial potential of inventions can be implemented without compromising 
scientists' professional obligations to promptly share the results of their research 
with peers. c ■ 

There is a great deal of evidence that the focus given to technology transfer since 
Bayh-Dole has increased invention awareness among investigators and that an in- 
creasing number of potential inventions are being disclosed and appropriately pro- 
tected For example, the number of patents granted to academic institutions has ex- 
perienced steady growth since 1980. A total of 1,324 patents were awarded in 1991, 
representing an increase of more than 200 percent over the 437 granted in 1980 
(Science & Engineering Indicators — 1993). 

Bayh-Dole and other initiatives during the 1980's also substantially increased um- 
versity interactions with industry. While funding from all major sectors for aca- 
demic research and development increased in real terms, funding from industrial 
sources more than doubled in real terms. In 1980, industrial sources provided ap- 
proximately 3.9 percent of the funds applied in the performance of academic re- 
search and development. By 1993, however, industrial sources represented 7.3 per- 
cent. During the same period the share funded by the federal government fell from 
67.5 percent to 55.5 percent (Science & Engineering Indicators— 1993). 

RCT's experience and that of its predecessor also demonstrate the growth in in- 
vention awareness among academic scientists. RCT worked with 80 percent more 
invention disclosures in 1993 than RC had the opportunity to assess in 1980. The 
period has also seen a marked increase in revenue generated from academic inven- 
tions and shared with institutions and their inventors. During 1980, Research Cor- 
poration's distributions to inventive sources equaled approximately $5.8 million in 
1993 dollars. RCT's 1993 distributions equaled $35.8 miUion, an increase of more 



107 

than 500 percent in real terms. During the thirteen year period 1968 to 1980, RC's 
distributions to inventive sources totaled only $30.9 million (in 1993 dollars). RC 
and RCT distributed more than $219 million from 1981 to 1993. 

We at RCT beheve, however, that many potentially valuable inventions are lost 
because they are unrecognized and never disclosed. In an attempt to address this 
problem, we offer a program of financial incentives to encourage investigators to dis- 
close their discoveries so that the commercial potential can be assessed profes- 
sionally. This program has been well received, but we continue to explore other ini- 
tiatives that will encourage investigators to recognize and disclose their inventions. 
Financi^ incentives motivate academic scientists, but prospects of financial reward 
from royalties on the sale of products are often too remote to be effective in motivat- 
ing investigators to make the effort required for their participation in the technology 
transfer process. Early financial incentives to disclose, a significant share of future 
royalty revenues, and other initiatives will be required to achieve the desired level 
of invention awareness. 

We believe that any action undertaken to modify Bayh-Dole that would have the 
effect of compUcating the technology transfer process, either by imposing additional 
requirements for federal review of licensing or other a^eements or otherwise reduc- 
ing the degrees of freedom currently enjoyed by universities or their technology 
management organizations, would work against efforts to capture a larger number 
of important inventions. The Bayh-Dole Act removed barriers to effective transfer 
of university-based inventions. It would be a great mistake to erect new barriers 
that would reverse or stall the progress that is being made in identifying and pro- 
tecting inventions that can produce important new products and processes. 

Technology transfer, particularly the transfer of the early-stage inventions typical 
of those resulting from university research, is a very difficult business. Although 
many important discoveries are made each year, few produce "core" technologies 
that become central to new competitive positions in substantial markets. A larger, 
though still relatively small, number of discoveries produce incremental improve- 
ments sufficient to justify costs of developing and introducing products. Most inven- 
tions disclosed have limited value which is insufficient to justify the investment re- 
quired to obtain intellectual property rights and ultimately to bring a product or 
process into commercial use. 

Corporate America is frequently faulted, often by its own representatives, for a 
lack of patience and for focusing too narrowly on next quarter's earnings rather 
than potential returns from long-term investments in developing new products. The 
development of new products or processes requires a significant commitment of cor- 
porate resources. It is a high-risk undertaking. Our job as an organization that Unks 
those who invent and those who bring products and processes to market is to per- 
form various functions designed to reduce uncertainty about the future value of 
technology-intensive products or processes and thereby to encourage companies to 
invest in their development. Our experience suggests that the willingness of both 
American and foreign firms to take a longer view may be changing. Perhaps fueled 
by increased global competition, reductions in defense expenditures, a new genera- 
tion of leadership or a combination of these and other factors, we are encouraged 
by the number and quality of companies pursuing product development strategies 
designed to establish or strengthen their positions in new or existing markets. Any 
action taken to add uncertainty to the technology transfer process, especially any 
weakening of Bayh-Dole or other initiatives that removed barriers to technology 
transfer during the 1980's, would clearly be counter productive. 

I am sure we all agree that new technologies, capital formation, and entrepre- 
neurship are the critical elements of the innovation process, and that new products 
and processes are essential for real economic growth. The United States leads the 
world in the performance of research and development and its universities make a 
major contribution in creating the knowledge that gives birth to technologies that 
provide the fuel for innovation. 

The manufacture of techjiology-intensive products contributed significantly to the 
growth experienced by the world's leading market economies during the past decade, 
and is evidenced by its growing share of total manufacturing output 

United States— 30.4 percent in 1990, up from 20 percent in 1980; 
Japan— 35.1 percent in 1990, up from 20 percent in 1980; and, EC-12-20 
percent in 1990, up from 15.2 percent in 1980. 

The manufacture of technology-intensive products will continue to drive increases 
in productivity that are necessary for ever-higher standards of living in these ad- 
vanced economies. The United States retains its leadership role in the manufacture 
of products that embody above average levels of R&D, but that role is being chal- 
lenged. During the past decade the United States lost share in several sectors (en- 



108 

gines and turbines to the European Community and radio, television, and commu- 
nication equipment plus the ofrice and computing equipment segments to Japan). 
We maintained share in the manufacture and sale of industrial chemicals, drugs 
and medicines, aircraft, and scientific instruments. 

Our nation's research universities will continue to provide the new knowledge 
that will drive growth in these and other industrial sectors. Any change in public 
policy that would complicate or otherwise introduce additional uncertainty into the 
technology transfer process will result in lost opportunities for innovation and real 
economic growth. 

Prospects for changes in regulations governing the transfer of potential new drug 
or biopharmaceutical products based on research supported by federal funds have 
recently had an adverse impact on RCT's efforts to attract corporate partners for 
the development of projects in our current inventory. The possibility of a new, more 
restrictive environment adds uncertainty to an extremely expensive, long-term, 
high-risk process required for developing and gaining marketing approval for new 
products. 

U.S. firms lead the world in the discovery and introduction of new pharmaceutical 
products and have experienced success in the global marketing of those products. 
Growth of the industry has been supported by national policies that encouraged and 
rewarded efforts to invest in the development of new tnerapeutics and other prod- 
ucts. These have included: 

Government funded research; 

Access to the products of university research; 

Freedom in pricing; and 

High standards for regulatory approval. 

Absent significant change in public policy, we believe that U.S. research-based 
pharmaceutical and biotechnology companies will continue to compete favorably 
with firms based in Europe and Japan. We believe they will continue their tradition 
of being the most technologically innovative of our nation's industries. 

In conclusion, Mr. Chairman, let me say that the Bayh-Dole Act contributed sig- 
nificantly to the process by which research-based products and processes are identi- 
fied, protected, developed, and brought to market. Since the adoption of the Act, we 
have seen a substantial increase in the number of inventions disclosed, evaluated 
for their technical merit and potential economic value, and protected by patents in 
the world's major markets. I encourage members of the subcommittee to consider 
carefully any changes in the Act that would further complicate or introduce addi- 
tional uncertainty into the technology transfer process. 

Thank you for the opportunity to testify. I will be pleased to answer any questions 
members of the subcommittee may have. 

Senator DeConcini. Thank you. 

Let me pose a couple of questions to the whole panel. 

Number one, I take it that there is no question here in opposing 
any government involvement that would have anything to do with 
setting the market price for the fmal product, or for the license 
from the university. 

Do you object to a royalty for the Government to participate in 
the profits of the ultimate product that is licensed through the uni- 
versities? 

And how would you do something to address the problem in the 
Scripps infamous case where it is — right or wrong — perceived by 
the public as being a rip-off and a bit difficult to explain when the 
Government has made the original grant to the university? 

We will begin with you. Dr. Munsinger. 

Mr. Munsinger. The first question, Mr. Chairman, on the return 
to the Government in the form of royalties, perhaps — you might 
guess that my organization would not be in favor of that. I think 
most universities would not be in favor of that. 

Senator DeConcini. Why not? 

Mr. Munsinger. Because the resources that you're able to ex- 
tract in a license agreement in the form of royalties — the univer- 
sity's share of that goes directly back into research and develop- 



109 

ment effort^. You're not going to be able to increase the royalty 
from, say, 5 to 10 percent by virtue of the fact that the Government 
would like to have a piece of the action. You're not going to change 
the total amount of the royalty rate or the amount earned by royal- 
ties. You are just going to change the way those resources are 
being distributed. It will reduce, somewhat, the incentive for uni- 
versities and their inventors to recognize and exploit inventions be- 
cause they, too, see the payoff potentially at the end in terms of 
higher 

Senator DeConcini. So it wouldn't make any difference to the in- 
ventors, would it? It would only make a difference to a licensee who 
would have 1 percent taken out of their profits that would go to 
the Government in addition to the amount of the royalty they are 
paying the university. It really wouldn't make any difference to the 
inventor, would it? 

Mr. MUNSINGER. Mr. Chairman, I think it would. I don't believe 
you would be able to get 6 percent rather than 5 percent as a roy- 
alty just because 1 percentage point would be going to the Govern- 
ment. 

Senator DeConcini. Do you think 1 percentage point would be 
an obstruction to the process? 

Mr. MUNSINGER. I am saying that an additional percentage point 
would be an obstruction. And that is our business every day. 

Senator DeConcini. I am asking you because I don't know. I just 
fmd it hard to believe that for a company that is making millions 
of dollars, a 1 percent additional royalty would be a disincentive — 
but I take your word for it. I have nothing to refute that. 

Give me an answer to my second question. 

Mr. MUNSINGER. I don't think there is anything wrong with a sit- 
uation such that an industrial organization supporting research at 
a university has the first right to any technology coming out of that 
research. I think it is a mistake to give that industrial organization 
a first right to all technology coming out of all research at that in- 
stitution. 

Senator DeConcini. Put that in la3rman's terms, Dr. Munsinger. 
Are you saying that the Scripps case was OK, except that they 
should not have had an exclusive license for it, but that they 
should be able to sell it for whatever they can, to whomever they 
want to, but not exclusively? Is that what you're saying? 

Mr. MUNSINGER. I believe that Sandoz should have the first right 
to the product of research growing out of their support, not nec- 
essarily the first right to the product of research growing out of 
Federal Government support. 

Senator DeConcini. But in that case, they got both. 

Mr. Munsinger. I think that is wrong. 

Senator DeConcini. So how would you correct the second part of 
that? Do you have any suggestions? Or maybe you would like to 
offer them later. I am just looking at whether or not we should 
delve into this legislatively or we shouldn't. If we do, how do we 
doit? 

Mr. Munsinger. I would have to give that more thought, Mr. 
Chairman. 

Senator DeConcini. Would you, please? 

Mr. Munsinger. Certainly. 



110 

Senator DeConcini. Dr. Vest, could you answer those two ques- 
tions for me? 

Mr. Vest. Sure. 

With regard to the first question, I cannot state empirically what 
industry would view as the influence of 1 or 2 percent tax on prof- 
its, but it seems to me that our relative roles are the following. 

The Federal Government, in my view, should be supporting fun- 
damental research; should be setting through policy some broad 
goals and avenues of strategic interest to the country; and provid- 
ing incentives. The university's role should be to conduct research, 
particularly that of a relatively forward-looking and long-range na- 
ture; to work very aggressively in partnership with private indus- 
try to see it commercialized. I think that anything that detracts 
from the incentive role and begins to produce disincentives, which 
perhaps small in the first instance over time may grow, and also 
perhaps increased regulation is probably to be avoided. 

With regard to the second question, I can speak only on behalf 
of my own institution, but I can assure you that the thought has 
never crossed our mind of entering into an agreement with a pri- 
vate company in which we would propose that the rights to all re- 
search, regardless of who sponsored it, would automatically accrue 
to one of our sponsors. Indeed, as we have entered into recent 
agreements with biotechnology companies, we have been very care- 
ful to write those agreements in such a way that they do have first 
right to license things that they have directly paid for, but nothing 
beyond that. We have put good policies and procedures in place to 
assure that that will be the case. 

Senator DeConcini. Thank you. 

Ms. Conta? 

Ms. Conta. With respect to your question about royalties, we ex- 
pect to pay up-front licensing fees and royalties to anyone who pro- 
vides an early stage technology to us. For us, the question is not 
whether the royalty is going to the Government or the university, 
the question is how much the royalty will be. We would work out 
an arrangement for reasonable royalty rates that were competitive 
and comparable in the area. We would expect that it is between the 
university and the Government to decide whether there is a further 
payback to the Government based on Federal funding. We don't 
feel that that is in our domain to include in a license agreement. 

Senator DeConcini. What if there was a legislated mandate of 
1 percent royalty to the Federal Government based on the profits? 
Would that be a disincentive for you to enter into a license agree- 
ment with MIT? 

Ms. Conta. I think I would echo what Dr. Munsinger said. It is 
the overall royalty rate that is our concern. If the overall royalty 
rate seems fair to us and commensurate with what we think we 
will 

Senator DeConcini. So whether 1 percent was fair as to the li- 
censed product? 

Ms. Conta. Yes. If we are going to pay a 3 percent royalty to a 
university, and that is a fair royalty, it is irrelevant to us if the 
university keeps 2 percent and transfers 1 percent back to the Gov- 
ernment. 



Ill 

Senator DeConcini. But of course you are in business and you 
want to rhake as much money as you can. If you are dealing with 
a private inventor who may not have the same theory or philoso- 
phy that a university does — they want to get their product out 
there because they can get more money back into research and 
they want to promote their university, or what have you — where an 
individual comes up with an invention, they want the biggest share 
they can get. They may be harder to negotiate with. Is that fair? 
You have to make a business judgment as to whether or not you 
can make some money at the end, right? 

Ms. CONTA. Right, and our business judgment is predicated more 
by the millions of dollars that we have to add to the early stage 
invention than it is by what we pay for it to begin with. I can't em- 
phasize enough that our investment into these early stages far ex- 
ceed any funding that went into the original 

Senator DeConcini. I am well aware of what the pharma- 
ceuticals put into these investments. I am well aware of the hear- 
ings we have had. I am just trying to find out for public policy. 
Quite frankly, from a legislator's point of view, as you see dwin- 
dling Federal funds — and that certainly means research funds as 
well — how do you try to maintain funding? Particularly, in a time 
that I think we ought to be expanding research funds, how do we 
get more money to create the benefits that this has? That is why 
the question comes up about a royalty based on profits. 

What about the second question? 

Ms. CONTA. I think the NIH has approached this, from our point 
of view, precisely in the right way. I served on the panel that Dr. 
Chamblee spoke about. I think that the panel did an exhaustive 
study of this issue and the guidelines that she mentioned were well 
thought out. If they are implemented by the grantee institutions, 
I really think that will take care of most of the problem. 

Only one aberration was discovered in all the hundreds of agree- 
ments the NIH examined. We feel that the views of small business 
were very well represented by the guidelines that the NIH would 
come out with. I would defer to the NIH there. 

Senator DeConcini. Mr. Bremer? 

Mr. Bremer. At the outset, when you are negotiating royalties, 
the licensor feels that there should be no limit on royalties. The li- 
censee feels that any royalty is too much. Those are the extremes 
to begin with. 

I think taking 1 percent out — the question that would come to 
my mind is. What is going to happen to the money? If it goes into 
the bureaucratic agency, it will be much less effective than if it is 
retained by the university and put back into education and into the 
research program which Bayh-Dole requires. 

Senator DeConcini. What if it went back to the NIH for grants? 

Mr. Bremer. There again, I look on that as a bureaucratic orga- 
nization. Let me give you an example. 

The Wisconsin Alumni Research Foundation — for which organi- 
zation I was patent- counsel for 28 years — gives on the average 
today about $16 million to the University of Wisconsin. That is un- 
restricted funding, which is the most important kind of funding any 
university can obtain because they can utilize it at their discretion. 
Most of the other funding comes in where it is quite directed. A 



112 

survey that was done by a former president of the university came 
to the conclusion that for every dollar that the university got from 
WARF they were able to leverage another $3. So the multiplier is 
much greater than if it was plowed back into any governmental ap- 
proach through an agency aspect. 

Another point is that when you're negotiating royalties, 1 percent 
can make a tremendous difference. Effectively, you would be taking 
the 1 percent from the institution and not the company because the 
outcome would be that the 1 percent would go and the institution's 
share would decrease by 1 percent. 

Senator DeConcini. Wouldn't that depend on the negotiating 
ability of the university? If there was a mandated 1 percent, hypo- 
thetically, to the granting agency, then you would have to deal with 
the university — the university would know you already have to give 
the government 1 percent. Wouldn't it depend on how tough a ne- 
gotiator they are and how much the company wants it? 

Mr. Bremer. That is the key. How much does the company want 
it? Every one of these inventions has to be sold. Remember that 
most of the inventions that come out of university technology are 
embryonic in nature. They require a great deal of development. As 
a consequence, we are negotiating at a very early stage. 

Also, industry standards do come into the picture — unless there 
is something that a company absolutely needs — and in those cases, 
you look for a company that wants an entry into the market that 
is otherwise closed to them — then you can negotiate a higher roy- 
alty. If it is a me-too approach, it doesn't work that well at all. 

Senator DeConcini. What about the second question? 

Mr. Bremer. I think there are other examples. I think Scripps 
was an aberration, but we have previous examples in the Mass. 
General/Higgs thing where the activities were separated out as to 
the work that was carried out with the Higgs money and the work 
that was carried out with the Federal funds at the Mass General 
Hospital. 

Another good examples is the MonsantoAVashington University 
of Saint Louis relationship, which was published so that everybody 
had an opportunity to look at that type of arrangement. 

I agree with Gary Munsinger that certainly there is no reason 
you can't promise a company the first option to a license, and per- 
haps an exclusive license, but it should be project-oriented. Gen- 
erally, it is project-oriented because it is specific research they are 
supporting, generally for a specific project or a specific product. 
Under those circumstances, I see nothing wrong with it. But to give 
a single company the right to everything that comes through I 
think is a mistake. 

Senator DeConcini. Dr. Munsinger, in your opinion, is there any 
reason drugs should be treated any differently than any other prod- 
ucts under the Bayh-Dole and other technology transfer programs? 

Mr. Munsinger. No. 

Senator DeConcini. Thank you. 

Does anybody else have any feeling about that? Does anybody on 
the panel disagree? 

Ms. Conta. I would like to distinguish biotechnology products 
from drugs. 



113 

Senator DeConcini. Do you think they should be — obviously they 
are distinguished, but should they be treated in a different manner 
under the Bayh-Dole legislation? 

Ms. CONTA. No. 

Senator DeConcini. I understand what you are saying. Obvi- 
ously there is a difference, but not under the legislation. 

Ms. CONTA. No. 

Mr. Vest. Mr. Chairman, if I could comment on that, I certainly 
do not believe that biotechnology and pharmaceutical products 
should be in any way treated separately under this act, but it is 
a prime example of why we in fact need the flexibility on the uni- 
versity end to think about what is in the public interest and what 
is the best way to handle this patent so that if we are dealing with 
a biotechnology product that has these enormous risks and long de- 
velopment times, we are most likely to go with an exclusive license, 
whereas in some other areas — often in the field of software, for ex- 
ample — we make a decision that this belongs in the public domain. 
I think the law should allow the broadest possible flexibility to 
make those judgments locally, case by case. 

Senator DeConcini. In your testimony. Dr. Vest, you state that 
one of the benefits that the Bayh-Dole Act has had for universities 
is modest royalty income. You also state that over the past 5 years 
net royalty income has averaged less than 0.5 percent of your total 
budget at MIT. 

Are research universities receiving enough royalty income under 
license agreements, in your opinion, through the Bayh-Dole legisla- 
tion? 

Mr. Vest. I believe the answer to that is yes. Of course, my pro- 
vost who has to deal with the budget year after year might vigor- 
ously disagree. But quite seriously, we realize on the order of $5 
million to $7 million per year to the institute from patent royalties. 
As I stated, that is particularly attractive money to us because it 
is totally flexible and we plow it back into the educational and 
scholarship and research activities. 

But we do not believe that maximizing our potential royalty in- 
come is the main goal of our technology licensing office. It is to see 
that technology gets transferred out into the private sector. 

Senator DeConcini. I think it is important to point out that you 
are a nonprofit organization. Your salary and that of all your em- 
ployees and the benefits are not based on how much you bring in. 

Mr. Vest. That is correct, in the narrow sense of the word. Al- 
though we are private institution and ultimately depend upon what 
we receive from tuition, grants, gifts, and so forth. 

Senator DeConcini. Why don't you try to get more income from 
that? 

Mr. Vest. We do believe that in the long run the thing that is 
most important is a strong relationship with private industry. We 
think that in the past some technology licensing offices or patent 
offices in universities have missed the forest for the trees of^ nego- 
tiating to maximize on a case-by- case basis the potential royalty 
income downstream where they should be looking at the broad pic- 
ture and maximizing the number of companies they interact with. 

The fact of the matter remains that there are at most a handful 
of patents in the country that have really brought massive amounts 



BOSTON PUBLIC LIBRARY 



ii'* 3 9999 05982 972 9 

of money into universities. Everybody dreams that that might be 
the case, but I think you are better off keeping a broad portfoUo, 
making case-by-case decisions of what is best in the public interest, 
but retaining enough financial incentive to continue to have some 
attraction to the faculty. 

Senator DeConcini. Ms. Conta, you were on the NIH panel? 

Ms. Conta. That's correct. 

Senator DeConcini. And you reviewed the Scripps case in that 
panel and found that it was just a single incident and not very 
common? Is that fair? 

Ms. Conta. That would be fair. Our concern with agreements 
like that is that we are not in a position to go in to a university 
and make them an offer for a large-scale technology transfer. We 
focus very specifically on inventions that are of interest to us and 
that we know we can commercialize. These large-scale agreements 
often include inventions which get transferred to that optionee and 
never developed. They are then not accessible to us as a small com- 
pany and we might choose to develop them. 

Senator DeConcini. Which is a disadvantage to the smaller com- 
panies. 

Ms. Conta. So our point of view is that we would prefer to have 
the decisions made on options relatively quickly by the large com- 
panies. If they don't intend to commercialize it, then turn it back 
to the university so that it is available and accessible to small com- 
panies like mine to develop. 

Senator DeConcini. And you make a very good point there. Is 
there a legislative way to fix that, to prevent that from happening? 

Ms. Conta. I would propose that there shouldn't be a legislative 
way to fix it. We find that the universities are — once they under- 
stand the process and are adept at finding licensees, they are very 
competent at this process. We would be better off not interfering 
with them in telling them how to do it. They have trouble enough 
finding a Ucensee as it is. There aren't that many around, and they 
have lots of inventions. 

I think it is best to leave it in their hands. 

Senator DeConcini. Mr. Bremer, the bill introduced in the 
House relating to this would amend the Bayh-Dole Act to require 
a research entity to conduct competitive bidding in selecting com- 
panies to market their products. 

What is your response to that? 

Mr. Bremer. I think that is a forlorn hope at best. 

Senator DeConcini. There would be no competitive bidding? 

Mr. Bremer. There is no competitive bidding. 

Number one, you are lucky to find a licensee. In finding the li- 
censee, one has to go out. We have made net income on 1 of every 
41 invention disclosures in the history of the foundation. That 
holds true today as well as in its early years. 

So it is a numbers game at best. Your chances of finding a single 
licensee do involve a lot of serendipity also. 

We look toward a partnership with the industrial partner. It is 
a shared risk situation. The university, because it is embryonic 
technology, is taking the chance that its patent life will run before 
a product reaches the market, whereas the industry partner is put- 



115 

ting in the money for development for the marketplace. That is the 
ultimate goal/ 

Senator DeConcini. So if you advertise for competitive bidding, 
you probably wouldn't get any takers? 

Mr. Bremer. No. NASA tried to do that. They listed and adver- 
tised all the technology they had available and it was an absolute 
disaster. 

Senator DeConcini. Do you mean that there were no takers at 
all? 

Mr. Bremer. That's correct, no takers. 

Senator DeConcini. So it might even discourage somebody if 
they thought they were bidding against somebody. 

Mr. Bremer. That's right. 

And practically, one has to realize that usually what gets pub- 
lished in databases are things that you are not actively working on. 
So if you want to use the vernacular, call them the dogs that you 
can't fmd a place for. The good ones, where you do have activity, 
are the ones that you very actively work on and continue to work 
on. 

Senator DeConcini. Thank you very much. The testimony you 
have given is very, very helpful to this committee, I can assure you. 

I thank the panel. 

The subcommittee will stand in recess subject to the call of the 
Chairman. 

[Whereupon, at 11:50 a.m., the subcommittee was adjourned, to 
reconvene at the call of the Chairman.] 

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